Emerging Chinese Small Caps Index
posted by The Traveller on Sunday, April 18, 2010

The China Growth Stocks Board (formerly called Emerging Chinese Small Caps) is what I consider the best-managed message board for China Small Caps investors, and its focus is on value growth stock trading and investing. And that's exactly what this blog is about as well.

Back in November last year the CGS board decided to collect everyone's favourite long-term picks and turn the collective wisdom of the board into a stock index, the CGS (ECSC) Index. Every stock in that index was weighted by the number of individual lists it appeared on, so the final index did accurately represent the opinion of the CGS board at the time of inception (November 27, 2009).

It is important to know that those individual lists were not meant to include momentum or short-term picks, instead every CGS member was asked to name those 10 stocks that they considered most promising for the next twelve months: long-term value investments based on growth prospects and fundamental value and unrelated to short-term market developments.

Since inception the CGS (ECSC) Index has outperformed all possible comparables by a wide margin. The average return for the initial 15 stocks that made up the index is 43.96% since November 27, 2009. 13 stocks have gained from 2.7% (CCME) to 164% (LLEN), one is unchanged (CNYD) and just one stock (CSGH) is down. To put these 43.96% into perspective: the general US market as measured by the S&P 500 has gained 9.22% in this period, the average China Small Cap as measured by the Claymore China Small Cap ETF (HAO) is up 7.89%, and the Chinese domestic market in Shanghai (Shanghai Composite) gained a measly 1.09%.

We have decided to revise the index quarterly, always in the week after the deadline for quarterly and annual reports. And last week was the first revision (the deadline for delayed annual reports is April 15). As the China Growth Stocks Board received a lot of attention since last fall and attracted many new members, the number of individual lists more than doubled from November and the revised index is possibly even more influential.

New Additions after April 16 Revision:

BioPharm Asia (BFAR.OB)
China Ceramics (CCLTF.OB/CCLWF.OB)
New Energy Systems (NEWN.OB)
Renhuang Pharmaceuticals (RHGP.PK)
Sino Agro Food (SIAF.PK)
Skystar Bio-Pharmaceutical (SKBI)
SOKO Fitness & Spa (SOKF.OB)
Yongye International (YONG)

Returning Stocks:

Biostar Pharmaceuticals (BSPM.OB)
China MediaExpress (CCME)
China Kangtai Cactus (CKGT.OB)
China Yida Holding (CNYD)
China Sun Group (CSGH.OB)
Longwei Petroleum (LPIH.OB)
Lotus Pharmaceuticals (LTUS.OB)
China North East Petroleum (NEP)
Puda Coal (PUDA)
Telestone Technologies (TSTC)

Dropped from the Index:

China Power Equipment (CPQQ.OB)
China Recycling Energy (CREG)
Gulf Resources (GFRE)
L&L International (LLEN)
Yuhe International (YUII)

It should be noted that those five stocks that are no longer on the index have performed very well in the past 5 1/2 months. LLEN is up 164%, CREG +68%, YUII +58%, GFRE +33% and YUII +7%. The most likely reason why those stocks are no longer on the index is price appreciation and not that they have been bad picks.

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