OTC-listed China Small Caps Outperforming in the First Quarter
posted by The Traveller on Friday, April 02, 2010

OTC-listed China Small Caps Outperforming in the First Quarter

A couple of weeks ago I noticed that there is no proper way of tracking the performance of US-listed China Small Caps as a group. At least not in the way I want to track them. So I have created two China indexes, one for stocks that are listed on a national exchange (NYSE, NYSE Amex or Nasdaq) and a second one for OTC/BB-listed China stocks (not pink sheets). Each index is composed of the 40 stocks with the highest market capitalization in their respective groups.

The main index has a cap of $1 billion as most of the higher capitalized Chinese companies as PTR, SHI or all the solars have very different trading patterns and attract a very different group of investors. The most important requirement for both indexes is that all stocks included must have been profitable for at least the last two reported quarters. If a stock no longer meets all those criteria it will be removed from the index with the next quarterly revision.

If we now take a look at both indexes after the first three months we get very surprising results. OTC-listed China Stocks outperformed those listed on main exchanges by a wide, wide margin. The OTC Index is up a whopping 24.13% in the First Quarter with 25 of the 40 stocks posting gains. The Main Index however only rose by 3.17% since the start of the year, partly due to the huge sell-off in well-known China names last Thursday. 26 out of the 40 stocks dropped in price. To put these numbers into perspective: the general markets (S&P 500) are up 8% this quarter and China's main exchanges are higher as well, but just under 2% (Hong Kong and Shanghai). There has been significant accumulation in OTC-traded stocks in the last three months and if we look at Thursday's numbers (Main Index down for the day, OTC Index higher), this trend seems to continue.

Here is an overview of the First Quarter highlights:

Main China Index (NYSE, NYSE Amex or Nasdaq)
- 1031.71 (up 3.17% in the First Quarter)
- 14 stocks are up, 26 are down

Top Five
  • SinoCoking Coal (SCOK) +87.32%
  • China Agritech (CAGC) +64.44%
  • China Integrated Energy (CBEH) +48.86%
  • AutoChina International (AUTC) +42.44%
  • China Valves Technology (CVVT) +41.55%
Bottom Five
  • Fuqi International (FUQI) -39.11%
  • China Sky One Medical (CSKI) -32.66%
  • Telestone Technologies (TSTC) -24.00%
  • RINO International (RINO) -23.40%
  • China XD Plastics (CDXC) -22.66%
OTC China Index
- 1241.32 (up 24.13% for the First Quarter)
- 25 stocks are up, 15 are down

Top Five
  • China Swine Genetics (CSWG.OB) +153.16%
  • Jingwei International (JNGW.OB) +147.50%
  • China Jo-Jo Drugstores (CJJD.OB) +137.61%
  • China HGS Real Estate (CAHS.OB) +115.55%
  • L&L International (LLEN) +89.61%
Bottom Five
  • Changda International (CIHD.OB) -38.42%
  • China Organic Agriculture (CNOA.OB) -29.63%
  • Emerald Dairy (EMDY.OB) -28.34%
  • China Medicine (CHME.OB) -22.80%
  • China Kangtai Cactus (CKGT.OB) -22.51%
Quarterly Revision (Second Quarter)

Both China indexes are revised at the beginning of each quarter, actually on the first weekend of the quarter as I have time to process it then. Stocks that do no longer meet the requirements are being removed. Reasons could be posting a loss in the most recent quarter, uplisting to a higher exchange or just a huge decline in share price. Following is a list of all changes for both indexes.

Main China Index (NYSE, NYSE Amex or Nasdaq)

Additions
  • Century 21 China Real Estate (CTC)
  • China Hydroelectric (CHC)
  • China Lodging Group (HTHT)
  • China Recycling Energy (CREG)
  • L&L International (LLEN)
  • Shengkai Innovations (SHE)
Removals
  • Agfeed Industries (FEED)
  • China Education Alliance (CEU)
  • China TransInfo Technology (CTFO)
  • Noah Education Holdings (NED)
  • Telestone Technologies (TSTC)
  • Tiens Biotech (TBV)
OTC China Index

Additions
  • China Baicaotang Medicine (CNBI.OB)
  • China Environmental Protection (CNVP.OB)
  • China Linen Textile (CTXIF.OB)
  • China New Media (CMDI.OB)
  • China Shuangji Cement (CSGJ.OB)
  • China TMK Battery Systems (DFEL.OB)
Removals
  • China Gengsheng Minerals (CHGS, uplisted)
  • China Recycling Energy (CREG, uplisted)
  • China Runji Cement (CRJI.OB)
  • Huifeng Bio-Pharma (HFGB.OB)
  • L&L International (LLEN, uplisted)
  • Subaye (SBAY, uplisted)

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4 Comments:

At April 05, 2010 12:32 pm , Blogger aw said...

FUQI is looking tempting as it dips. It looks like its has a solid enough model to weather this lawsuit storm. Or do you think it just has too much accounting baggage? YUII also intrigues. Robust growth. The whole eating-is-never-going-away angle. At what price do you see that one as tempting? $8?

 
At April 05, 2010 9:26 pm , Blogger The Traveller said...

Personally I avoid stocks that are caught in a downtrend or look likely to be dead money for a good while. FUQI is cheap here based on the new guidance but there is a Yuan revaluation risk there as well. YUII is sitting on the year lows now, maybe it bounces again here but I doubt it. But TSTC is coming closer to my buy range ($12-13).

 
At April 07, 2010 1:36 am , Blogger aw said...

I'm bullish on YUII. Yeah, it could bounce around a bit for the next few months, but it seems 2010 fourth quarter could hold some hefty gains and push that stock up to $18. At least that's what one analyst is predicting. I assume, you like to 'flip' these stocks pretty quickly. I'm wary of the short-term capital gains taxes I could rack up. By the way, picked up some CYXN, after reading about it here. Net income up 26% in 2009 not bad. That's one for my kids' accounts, along with other long-term prospects.

 
At April 11, 2010 9:45 am , Blogger The Traveller said...

My philosophy is that I have to be comfortable with all my holdings at all times. If I am not, for whatever reason, I sell. Can always rebuy a stock later but it saves me some headaches and possibly grey hair. I have no problem with taxes as here in Europe I have to pay a fix tax of about 30% on all capital gains which is taken off immediately after I sold something for a profit. It doesn't matter if I held the position for one minute or one year. I kinda like it, it's plain and simple.

 

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Entrepreneur, trader, programmer. Several businesses since 1990 (Software Distribution, Record Store, Communities, Publishing). Work must be enjoyable