It didn't happen exactly as I had predicted, but it has
finally happened. And it means that the world's
fastest-growing stocksare available
for cheap.
Before I get to the whos, whys, and wheres, though, let me
tell you whom we have to thank.
Here comes the cabal
Although owners of heavily shorted stocks such as
Sirius XM (Nasdaq: SIRI),
Motorola (NYSE: MOT), and
Advanced Micro Devices (NYSE: AMD) may
disagree with me, short-sellers are crucial to healthy
markets.
By making the case for stocks to fall, short-sellers make
the market more efficient. Shorts temper excessive optimism,
helping us all avoid the protracted painful corrections that
are its consequence.
Where shorts didn't tread
Optimism, however, had been the defining
characteristic of Chinese markets until 2008. Chinese stocks
gained 130% in 2006, and another 97% in 2007. As a result,
money moved into these markets at a remarkable clip, and
stories aboundedabout Chinese housewives, cab drivers,
and fishmongers speculating in the market.
Of course, there was nothing to stop them.
See, you couldn't short stocks in China. Without investors
scouring the market for weaknesses, those same housewives,
cab drivers, and fishmongers have been treated to nothing but
good news. That made them overconfident, overzealous, and
then overexposed to an unquestionably richly valued basket of
stocks.
It won't be that way for long ...
China's Security Regulatory Commission -- fearing a
stock market crash -- was reluctant to stop them. That's why
the country held off for so long on allowing investors to
short stocks.
But it had become so bad in China last year that the CSRC
finally approved shorting at the end of September. To me,
this indicates that the CSRC believed all optimism had been
purged from the marketplace. When that happens, we've reached
the point of maximum pessimism -- the precise time that
master international investor Sir John Templeton would have
told you to invest.
And you should consider that. Because though Chinese
stocks have rebounded from their lows, many are still
available for lower multiples than we had seen previously.
For example, fast-growing companies such as newly listed
Yongye International (Nasdaq: YONG) and
China Marine Food (AMEX: CMFO) -- both
Motley Fool Global Gainsrecommendations -- are
selling for less than 10 times earnings.
Get ready to buy
That's why you should be licking your chops. Continued... |