More Good News on Chinese Companies that Trade in the U.S. – From “The Motley Fool”

We’ve been saying for months that there are good Chinese companies whose shares trade in Canada, the U.S., Germany, Hong Kong and Singapore.  Many of these are trading at ridiculously low valuations.

A friend sent me this article from The Motley Fool (www.fool.com), which confirms what we at Friedland Global Capital have been saying.  I just returned from China on Saturday, and couldn’t more agree with the conclusions of the article. We’re glad that Wall Street and investors are starting to realize that especially with the economic and financial issues that the U.S. and Eurozone are facing that incredibly undervalued Chinese companies that trade outside China are in many cases very undervalued.

Here is the article from The Motley Fool in its entirety:

The Best-Positioned
Investors in China

BEIJING — I haven’t been completely straightforward about this trip with you. I’m not here in China just to uncover superior investing ideas.    I’m also helping The Motley Fool explore the possibility of expanding to China. We think that would be fantastic for global investors and for the Fool’s international stock research. And like Warren Buffett, we think we are better investors because we are businessmen and better businessmen because we are investors.

Thanks to our business research, we’ve come to a powerful — and unexpected  — revelation about investing in China. It runs so contrary to conventional wisdom that I didn’t believe it the first time I heard it. But after it was reinforced in four meetings in four days, it started to sink in: The
people in the best position to invest in China don’t live in China. They live in the United States.

Pick Your Jaw Up Off the Floor

This didn’t make any sense to me at first. Given how different   the business culture here is, it would seem that investors who are in China   every day, talking to consumers and reading the papers, would have a leg up.

But the reason Americans are best-positioned to invest in China is that we can all access the Chinese companies listed in the United States. Despite the falling stock prices and fraud accusations that some of them have experienced recently, we’ve heard over and over again that these companies are the best China has to offer. They’re the most likely to have reliable accounts, the most likely to be thinking about shareholders, and the most likely to be left alone by the government. And Americans aren’taffected by the policies the Chinese government uses to influence the stock market, such
as imposing stamp taxes or controlling the IPO schedule. This means U.S. investors can think about investing in China for the long term — something  that, for structural reasons, Chinese investors might be foolish to do.

Because of all this, most Chinese investors are speculators, clinging to talismans like momentum or lucky numbers to trade in and out of   stocks daily. After all, the potential for an abrupt change in government   policy would make their stock research useless. With a wave of a wand, a   government official can make a bad business great or put a great business   under.

But China Is a Long-Term Story

Heaping volatile trading on top of an already volatile Chinese market and economy is a recipe for disaster. So we’re putting time on our  side. We recognize that investing in China will be a rocky ride, but we  believe the country still has decades of growth ahead. We want to be invested here for the next 10, 20, or even 30 years as hundreds of millions of people move into China’s cities and out of poverty, creating a consumer culture the magnitude of which the world has never seen.

The way to take advantage of that megatrend is not to trade in and out of it, but to ride it on the backs of high-quality, innovative companies.

We’re not the only ones who know this. We’re hearing that Chinese investors are also reaching this conclusion and moving their money into Hong Kong, where they can fund brokerage accounts that can freely trade   in the United States. The estimates are hazy, but we’ve heard that anywhere
from 60,000 to 1.5 million people have done this. That’s a drop in the bucket compared with the total number of Chinese investors — though the trajectory is clear.

Music to Our Ears

And we liked hearing this. As businessmen, we’d love to be able to bring Foolish U.S. investment advice to the massive and growing Chinese market. But what’s even more empowering is the idea that if Chinese investors are jumping through hoops to invest in U.S.-listed Chinese stocks,
then China isn’t rigged against foreign investors. In fact, it may be just the opposite. The prospect of Chinese growth within a free-market framework just might deliver the best returns.

If you’ve avoided investing in China because you figured you need to live in Shanghai or Shenzhen to get the best companies, it’s time to reconsider that notion.

Tim Hanson

Tim Hanson is co-advisor ofGlobal Gains, The Motley Fool’s international stock-picking service.

  The Motley Fool
2000 Duke Street
Alexandria, VA 22314

Copyright   © 1995-2011 The Motley Fool. All rights reserved.

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About Jeffrey Friedland

Jeffrey Friedland is Managing Director of the financial services firms, Friedland Global Capital Pte. Ltd.(www.friedlandcapital.com), which has representatives in China, Singapore, the Philippines and Indonesia. Since 1981, the firm has facilitated growing entrepreneurial companies in emerging and frontier markets to access foreign investment capital. Since 1979 Mr. Friedland has assisted hundreds of companies worldwide with their business planning and financing objectives. In addition to providing corporate finance advisory services, the services provided by Mr. Friedland have included obtaining venture capital, mergers and acquisitions, and assistance to companies regarding financing their growth and going public. Mr. Friedland has traveled globally with the management of companies with the objectives of assisting the companies with obtaining capital, expanding globally and entering into strategic alliances. Mr. Friedland has been featured or quoted in numerous publications including the Wall Street Journal, USA Today, The South China Morning Post (Hong Kong) and Forbes. He has also been featured over 60 times on Financial News Network, which is now CNBC, as well as on Bloomberg and Bloomberg TV. Mr. Friedland has been a frequent speaker at various trade shows, conferences, conventions and meetings throughout North America, Europe and Asia, and at Bloomberg sponsored events, including in London. Mr. Friedland is the author of "All Roads Lead to China," an Investor Road Map to the World's Fastest Growing Economy, which is available in print and Kindle editions at Amazon.

Posted on June 21, 2011, in China, China Economy, The Motley Fool, U.S., US, US Economy. Bookmark the permalink. Leave a comment.

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