It's A New Day: The VC-30 Grows Up
By Douglas C. McGill
(Virtual China, June 1) To borrow from an old cigarette advertising slogan just for a moment, do we want an index of China stocks that tastes good, or one with good taste?
Translation: do we want an index of interesting micro-cap stocks that gyrate like crazy and occasionally hit really big, or do we want a more sedate group of stocks that represent larger and longer-term investments in China? The second group won’t fluctuate as much from day to day but in theory will track more closely significant flucutations of the China-Western business climate.
In these post PNTR days, I vote for the latter. If there was ever a day marking the maturing of U.S.-China relations, it was last Wednesday. That’s why I think it’s important the Virtual China 30 start to look more like the Dow Jones Industrial Average than GlobalNet’s Microcap 1000.
Companies like Motorola
Two weeks before the PNTR vote, we added Motorola to the Virtual China 30 for these reasons. Watching the market react to the PNTR vote, it’s clear the index should contain more companies like Motorola - major Western companies whose share prices noticeably rise or fall based on their current business and especially on their prospects in China.
The day after Congress granted China normal trading status, nearly every one of the major telecommunications companies making heavy investments in China rose on the news. Ericsson (NASD: ERICY) rose .56 to 19; Nokia (NYSE: NOK) rose 1.63 to 49.63; Alacatel (NYSE: ALA) rose 2 to 46.378; Cisco (NASD: CSCO) rose 2.25 to 57.38; and Nortel (NYSE: NT) rose 2.63 to 54.13.
Gamblers and Golddiggers
Even a year ago, it made sense to make a China-related investment index out of microcaps - the share prices of multinationals in China hardly ever budged based on their China business or prospects, and most of the companies announcing interesting new business in China were startups, entrepreneurs, and plain old gamblers and golddiggers heading East.
That was a colorful crowd, but the fact is those early days are coming to a close. Today, just for fun, I printed out the last two days worth of Yahoo headlines on China. A year ago, there might have been one or two interesting new ventures announced each day, mostly by smallfry. Today, I counted no fewer than 58 announcements of joint ventures, private placements, regulatory approvals, and bullish China announcements by major American companies pushing into China. Microsoft, which just saw a year in which China revenues doubled, predicted the same would happen again this year. Toyota announced it will make 30,000 compact cars in China. Ericsson, Compaq, Applied Materials, Network Solutions and Netalone were among the others to announce new China ventures.
More Even Keel
The Virtual China 30, as it evolves, should go towards becoming a reliable daily indicator of the state of China-Western business climate. And that means having larger, more heavily invested companies on that index. By virtue of their close ties to the Chinese government, the managements and the share prices of those companies will also tend to thrive or wane more reliably in step with the warming and cooling of China-Western affairs.
True, Motorola or Ericsson stock moves only ten days a year on China news, but that is ten days more than a year ago, and things are going in that direction. Rest assured, now, major China news will always move those kinds of stocks, and the VC-30 as well. In the meantime, the relative stability of those stocks will tend to keep the VC-30 on a more even keel.
Gamblers and Buccaneers
Also in keeping with our “growing up” trend, most of the new Virtual China 30 stocks are traded on the NASDAQ, New York Stock Exchange, or Stock Exchange of Hong Kong. For variety, one NASDAQ-traded new media Taiwan stock (Gigamedia), and two “old economy” ADR’s traded on the NYSE have also been included as they tend to respond to changes in the China-Western business climate as sensitively, and sometimes more so, than any other: China Eastern Airlines and Shanghai Petrochemical.
At the same time, we recognize that great ideas often arise in the smallest companies, and that China-Western trade remains a tremendously fertile area for enterprising businessfolk - gamblers and buccaneers included. They’re often the most interesting companies, and sometimes the most profitable ones, to track and invest in. So we’ll continue to watch the microcaps and smallcaps in China although, increasingly, in another setting than the VC-30.
Here’s the new lineup, provisional for now:
The Virtual China 30
Adatom
Alcatel
AsiaContent
AsiaInfo
Chinadotcom
China Eastern Airlines
China Telecom
Cisco
Entrust
Ericsson
GigaMedia
Global Crossing
GraphOn
GMAI
GRIC
HKT - Cable & Wireless
Legend
Lucent
Motorola
Nokia
Nortel
New Tel
Pacific Century
PetroChina
Qualcomm
Shanghai Petrochemical
Sina.com
Tom.com
UTStarcom
Zi Corp
The following aggressive young micro- and small-cap companies will continue to be covered, and rated using the "V-Rating System," under another rubric yet to be decided:
Avaterra
Cathay Online
CBQ Inc
China Contintental
Communication Intelligence
Intermost
EvisionUSA.com
Forlink
The Hartcourt Companies Inc.
My Web
Southland Financial Inc.
Telpac Industries Inc.
Tengtu
Tianrong Internet Products & Services
Vertical Computer Systems Inc.
Xin Net
To discuss this article with me and others, or to air your views about the Panglossian* business of making money on China concept stocks, please stop by the China Stock Forum.
To reach Douglas McGill email: dmcgill@virtualchina.com
To see the complete list of the Virtual China 30, click here.
* Ok, check it out, but only if you promise to come back.
