Monday, October 3, 2011
Investing: A Bargain Named Chinese Internet Stocks
There are at least 2 issues behind the fall, which are just temporary and should cease soon, making way for a recovery.
1. The Chinese economy is cooling, especially manufacturing. This is intended by the Chinese government. Peking is scared by the risk of inflation and is standing on the brakes now. But the prices for oil, metals and other commodities are plummeting, and are now easing the inflation risk.
2. Chinese Internet stocks are under pressure because the Department of Justice is currently reviewing allegations of accounting fraud at firms operating out of the Asian nation. The bureaucrats are reacting to rumors which were spread by speculators who are betting on falling stock prices. I believe there is nothing behind these rumors and therefore the stock should recover soon.
3. Some of the Chinese companies suffer interventions by the Chinese government. In August, Baidu was attacked by the government owned tv-channel CCTV. The station claimed Baidu allegedly used lax approval processes on its paid advertising platform that allows for fraudulent websites to flourish. The search machine "may face tougher rules after state media criticism", commented Reuters. But this wasn`t the first politically motivated attack. Some years ago CCTV claimed the Baida allowed advertisement for false medical products, sending the stocks south. But the Baidu management reacted swiftly and smartly. They apologized and changed their advertising system and the stock soon returned to the rising trend.
There is a high probability that these negative issues dissolve by Christmas. And: The Chinese internet market, especially e-commerce, is still in a very young phase and should continue it´s meteoric rise. Both factors imply that Chinese internet stocks will have much higher prices by then.