It’s a classic case of “too much, too fast,” and it unfolds on a more or less regular basis in the investment world. Despite their MBAs and statistics PhDs, money managers get caught up in the craze of buying and then they have to keep up with their peers to make sure they don’t underperform and then the buying gets even nuttier.
The sell-off this week in China stocks fits the pattern: last week Beijing authorities announced a stimulus plan that included the most loved factor anywhere: cuts in interest rates. China-related and China-curious stocks took off higher for days and now reason and adjusted algorithms kick in again.
China Stocks Sell Off As Reality Sets In
The iShares China Large-Cap ETF:
This New York Stock Exchange-listed fund contains the top 50 big caps among China-based securities that can be found on the Hong Kong exchange. The Blackrock ETF gives investors a chance to diversify in the sector rather than take chances with just a single stock or two.
The fund holds, for example, Alibaba Group Holding, Meituan, TenCent Holdings, China Construction Bank and JD.Com Class A. The price-earnings ratio for the ETF is 14.30, significantly lower than that of the S&P 500 which has a Shiller p/e of 37.22. The iShares China Large-Cap ETF pays a 2.18% 12-month trailing dividend yield.
Alibaba Group Holding.
This is the internet retail company founded by Jack Ma in 1999 with headquarters in Hangzhou. Market capitalization is $265 billion. The stock hits the high end of the value range for the fund’s holdings with a p/e of 28. Alibaba pays a .90% dividend.
The daily price chart above shows that it’s actually held on a little better than the iShares China Large-Cap ETF. The stock is now bouncing a bit after the earlier-in-the week sell-off.
Las Vegas Sands.
The Sin City casino/resort company has significant properties in Macau and because of that, the stock’s been trading as if it’s a China stock. This is apparent if you simply compare the Las Vegas Sands chart to the Alibaba or the China ETF charts. Trump supporter Miriam Adelson, wife of the late CEO Sheldon Adelson, holds 56% of the stock float.
Wynn Resorts.
This is another of the U. S.-based casino/resort companies holding large operations in Macau and so, the price charts show how much it trades like Alibaba and the other big Hong Kong securities. WYNN has a market cap of $11.62 billion.
You can see the pattern on the daily price chart above: by late September, buyer anticipating an economic stimulus package began taking a liking to the stock and when the actual interest rates-plus announcement arrived, WYNN hit nearly $108. The sell-off took it back down to $100 and it’s been bouncing since then.
Full disclosure: when I was News Director of KLUC-FM in Las Vegas, I interviewed Steve Wynn and met with Elaine Wynn. Steve’s no longer involved with the company but Elaine still holds more WYNN shares than anyone else, last I heard. I counted the cards at the Golden Nugget, which they owned then, and lost money doing so.
No artificial intelligence was used in the writing of this piece.
More chart analysis and commentary at johnnavin.substack.com.