Why Chinese Reverse Takeovers Significantly Lag the S&P 500

July 20, 2011 - PRLog -- Since the financial crisis, the global equity markets have shown a solid turnaround before witnessing some sort of risk aversion during 2011, as the European problems continued to worsen. Asian equities have been the worst-performing markets year to date, while U.S. markets ranked amongst the top performers.

The year also came with a big negative surprise for the Chinese reverse takeover stocks listed in United States, as the Securities Exchange Commission (SEC) suggested a “cautious approach” for the investors in such stocks through its recent investor bulletin. This is evident from the performance of the Bloomberg Chinese Reverse Mergers Index (CHINARTO Index), which is a market capitalization weighted index that tracks China-based companies trading on U.S. exchanges following reverse mergers.

The year-to-date return on the S&P 500 Index is around four percent, compared to CHINARTO’s decline of around 43% during the same period.

Investors have turned skeptical regarding reverse-takeover players due to the enormous volatility in the share prices. The majority of reverse-takeover stocks took a hit after the SEC announcement and might continue to trend down; while, for a few others, this should be considered an opportunity to build long positions. These include stocks having a clean reputation, solid business models, and an attractive financial performance. The best way to justify this argument is by having a look at the performance of the Trading China Main Index (TCM) and China OTC Index (TCO).

The TCM tracks profitable U.S.-listed Chinese growth stocks that are listed on senior exchanges (i.e. NYSE, AMEX, NASDAQ). Created on December 31, 2009, this index started with a value of 1,000 index points and is currently trading at 590 (around 40% down). The index is revised quarterly and includes the 40 stocks with the highest market capitalization that meet the certain criteria.

The TCO tracks profitable U.S.-listed Chinese growth stocks that are listed on the Over-The-Counter Bulletin Board (OTCBB) exchange (not Pink Sheets). Created on December 31, 2009, the index started with a value of 1,000 index points and is currently trading at 360 (around 65% down). The index is revised quarterly and includes the 40 stocks with the highest market capitalization that meet the specific criteria.

On the plus side, both of these indices have made a significant move in the past two weeks and gained 17.5% from the lows in mid-June.

My investment advice is that, apart from the components of the above-stated indices, there are other attractive company stocks listed on U.S. exchanges and also traded over-the-counter that are attractive, especially following the selling. The rally in the indices is suggestive of some hope that these indices might have bottomed out and may therefore be ripe for a rebound.

However, only time will tell.

Retire on This One Hot Stock!

This stock is up 232% since we first picked it. Our expert analysts say it will go up another 100% in the next 12 months! Our top 19 stock picks were up an average of 173.57% in 2010 (not a misprint). See where we are making money in 2011 and get our combined 100 years of investing experience working for you starting today.

Get your FREE report on our top stock pick immediately here.

http://www.profitconfidential.com/pcabs/

# # #

We publish Profit Confidential daily for our customers because we believe many of those reporting today’s financial news simply don’t know what they are telling you! Reporters are trained to tell you the news—not what it can mean for you!
Visit our site:

http://www.profitconfidential.com/