Can China Keep It Going?
Quite a few of last week's biggest winners were Chinese stocks, posting double-digit-percentage gains. Some had better-than-expected quarterly results, but others simply exhaled after falling out of favor for too long.
The market has turned its back on many of the world's most populous nation's former darlings. Yes, China's growth has slowed. The country's industrial output growth has fallen to its slowest pace in three years.
The important thing to remember here is that China is still growing faster than most of the world's economies -- including our own.
How well Chinese equities hold up will depend largely on the handful of companies stepping up to report their quarterly earnings this week.
Let's go over a few of the names on a day-by-day basis so we can play along with Mr. Market's scorecard.
Phoenix New Media (NAS: FENG) reports tonight. The new media company provides news and other premium content across Internet, mobile, and TV channels in China.
The stock has taken a pounding. It trades near its 52-week low, even though Phoenix New Media had delivered better-than-expected profitability for three consecutive quarters. The company's eyeing another meaty profit tonight that would turn its trailing P/E from negative to a positive multiple in the low teens.
There will be plenty of smallish Chinese companies with stateside listings reporting on Tuesday.
Airport advertiser AirMedia, quick-service-restaurant operator Country Style Cooking, infrastructure information specialist China TransInfo, and Kongzhong (NAS: KONG) are on the plate.
Kongzhong provides wireless, value-added services in China. In other words, it makes money by serving up mobile content including games, media, and chat services. This was a niche that some of China's larger online companies moved away from when China and its wireless carriers got stingy about third-party providers.
Kongzhong is still finding a way to make a profit here, and Wall Street analysts see earnings soaring 60% to $0.16 a share for tomorrow's quarter.
SINA (NAS: SINA) is the biggest name reporting this week, and understandably so. Its micro-blogging platform, SINA Weibo, has 324 million users in China. Yes, that's more registered users than the entire population of the United States.
The growth of SINA Weibo has been a mixed blessing for SINA. It has chosen not to monetize the website early in its growth, and that has led to several quarters of cascading profit margins. Analysts actually are bracing for a small deficit out of SINA.
The company posted its first quarterly loss in years three months ago. The market's banking on a repeat performance, though encouraging news of the company's plans to monetize SINA Weibo later this year will probably help offset the sting.
Results on both counts have been anything less than E-ticket attractions. E-House provides real estate services. Dangdang is an online retailer that got its start selling physical books online before moving on to bigger ticket items. Sound familiar?
Analysts see both companies checking in with quarterly losses, but let's not assume that it means that growth has stalled. The only thing that's been dealt a setback is the net profit margin at each company. There's no problem with top-line growth. Analysts see revenue at E-House and Dangdang climbing 11% and 52%, respectively, this quarter.
The challenge for investors -- just as they're seeing with SINA -- is whether they are willing to suffer through the near-term margin contraction to arrive at the promised land.
The market's usually quiet on Fridays, and there aren't any stateside-listed, Chinese equities speaking up on the final trading day of the week.
There will be plenty said by then, of course.
If China wants to win back investor attention it's going to have to earn it, literally and figuratively.
Betting on China
There's plenty of growth still to be had if you buy the right Chinese growth stocks. Last week's winners bear that theory out.
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The article Can China Keep It Going? originally appeared on Fool.com.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Country Style Cooking and China TransInfo. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.Motley Fool newsletter serviceshave recommended buying shares of SINA. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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