A True China Bear

Posted on April 28, 2008 , filed under Stocks | Print This Post

With all the talk of a bear market in China, it pays to look at China in comparison to Hong Kong its nearest cousin. I would consider a true bear market as one that drops 80% or more. In 1973, the Hang Seng Index dropped from 1100 to 153 in under a year. Today the Hang Seng Index is over 25,000. China may be a similar long-term opportunity as Hong Kong in 1973. In 30 years, a Shanghai Composite Index at 150,000 points or higher seems plausible if we look at the history of emerging economies that continued growing into a developed economy. In the U.S. the Dow grew thousands of percent as the economy grew between 1930 and 1960.

Since reaching an all time high in October, 2007, The Shanghai Composite Index has dropped nearly 40%. At the moment the best way to invest in China is through Morgan Stanley’s China A Share Fund [[CAF]]. The fund is down from a high of $72.30 to $45.41, a drop of 37.19%. Last month, CAF dropped over 50% to a one year low of $33.51. If the fund were to drop to $20, it would represent a drop of 72%, close to a true bear market and I would enter heavily at that price as a long-term investment opportunity.

*Disclaimer: The author does not hold a position in any of the stocks mentioned.

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Comment by alan jacquemotte

2008-07-26 17:49:47

From the high of 1930 (about 244) to the low of 1960 (about 600)the Dow was not even a triple. If you picked the 1932 low (about 60) you could get almost ONE thousand percent, not “thousandS”. In those particular 30 years a lot of other things probably did a lot better.

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