China stocks continue their descent into an extremely ugly bear market.
The CSI300 down another 6% today. H-Shares (Chinese companies listed in Hong Kong) down 3.4%. And the benchmark Hang Seng down 2.5%.
Not surprisingly, our China recommendations continue to take big hits as investors simply pack up and leave.
Fundamentals… valuations… these matter little right now so as a result we are putting all our H-Share recommendations to HOLD right now.
You can’t argue with the market.
As far as I’m concerned, the more people panic, the greater the opportunities we have to buy completely solid, profitable companies and phenomenally cheap prices.
I don’t WANT a market crowded with cool-headed rational investors!
The broader Hong Kong market is likewise getting absolutely pummeled.
The benchmark Hang Seng Index is now trading at an all time low in terms of price-to-book value.
Investors now value Hang Seng stocks at less than their asset values!
This levels are as low as the deep panic days of the Asian Financial Crisis and Global Financial crisis… frankly speaking, the outlook doesn’t appear anywhere as bleak as it was on those occasions.
There are dozens of quality companies in the wreckage…
Take Sun Hung Kai Properties Ltd. (16 HK) for example… It’s one of Hong Kong’s largest real estate companies and ranks in the top 5 largest property companies in the world.
It has a market cap of approximately US$30 billion.
I’ve been covering this stock for well over 20 years.
It now trades at HALF its book value. That’s 50 cents for a dollar of assets!
And these are hard assets, bricks and mortar… not some meaningless flaky accounting asset.
This is a company which did US$1 billion in free cash flow last year, isn’t overwhelmingly invested in or exposed to mainland China, and has a net debt to equity ratio of just 10%.
This company has virtually zero systemic financial risk.
The last time it traded at this much of a discount was in 1998 at the height of the Asian Financial Crisis!
But I’ve been here before a few times over the years, so believe me when I say that although it’s unsettling, conditions like what we’re experiencing today provide the BEST opportunities to make incredible returns.
I know it doesn’t feel like it right now. But I’ve seen it time and again…
Going back to Sun Hung Kai Properties for example, the last 3 times the company traded near the kind of discount I’m seeing now, the stock went on to rally 32%, 107% and 195% in less than 2 years.
However, the descent continues for the time being.
Please mind your trailing stops. Each stop you hit means more ammunition for the kinds of opportunities I just described.