THE CHINA SYNDROME
No, not the movie with Jane Fonda (back before the exercise videos) and Michael Douglas (when he was better known as Kirk’s son). We’re talking about the stock trading phenomenon that followed close on the heels of the November 15, 1990 agreement opening new avenues for trade between the U.S. and China and paving the way for China’s entrance into the World Trade Organization.
President Clinton’s historic announcement initiated a frenzy of buying; investors flocked to companies that appeared to be connected to China. A few notable examples:
Shares of China Prosperity International Holdings, Inc., which were priced at $1 on November 15th, closed at over $11 per share on November 16th and traded as high as $ 80 per share on November 17th. By December 3rd the stock price had retreated to just over $12, still a dramatic increase over the pre-announcement trading price. The Company, which is reportedly engaged in the building and construction industries in Hong Kong and, a China, reportedly lost $20.9 million for the year ended December 31, 1998.
China Resources Development Corporation, which purchases rubber produced on the island of Hainan and distributes it in China, closed at $3.875 per share on November 15th. On November 17th shares of the Company hit $49 before settling down to close at $25. Volume, which was 900 shares on November 15th totaled over 900,000 shares on November 17th. By December 3rd, the price had fallen back to about $10 a share. According to published reports, the Company’s net sales for the six months ended June 30, 1999 fell by 51% while net losses for that period rose 13%.
Dransfield China Paper, which manufactures and distributes paper products and beverages, reportedly suffered a 75% increase in net losses attributable to its common stock for the fiscal year ended June 30, 1999, while revenues fell 91% for that same period. The Company’s shares, which closed at just over $.43 cents on November 15th, traded as high as $29 on November 17th before closing at just over $11 a share. Volume for November 17th was 1.3 million shares, as compared with 17,600 shares on November 15th. On December 3rd, the stock closed at $6.75.
American Champion Entertainment Inc. shares surged as the company announced it was making progress in talks to acquire 80% of a Chinese sports promoter, Beijing Great Wall International Sports Media Co. American Champion operates a U.S. karate studio and produces exercise videos, including one featuring former NFL Quarterback Joe Montana. The Company also produces a children’s television series featuring a six foot kangaroo who is skilled in martial arts. American Champion shares closed at about $.31 cents on November 16th. On November 18th the stock was on NASDAQ’s most active list, trading as high as $4.875 on volume of almost 32 million shares. The closing price on December 3rd was under $1 per share.
Qiao Xing Universal Telephone Inc. saw market prices move from $3 a share on November 15th to over $27 on November 18th before closing at $14.75. Over 13 million shares of the Company’s stock were traded on November 17th and 18th as opposed to 6,500 on November 16th. Shares were at $11.75 on December 3rd.
Shares of China.com Corporation, which operates a Chinese language Internet portal network, moved from $58 a share on November 12th to a closing price of more than $127 a share on November 16th. On December 3rd they were priced at almost $120 (after closing at $109.50 the day before).
As might be expected, most of these companies saw their share prices settle down as speculation waned in the days that followed the Clinton announcement. The big question for investors – will any of these "China-related" companies actually benefit from the new trade agreements? And if so which ones? Should investors simply "buy China?"
Right now it all seems like fodder for the speculators (and the day traders). Any tangible benefits from the new trade alliance remain far down the road, since the future of any pact, and the realities of World Trade Organization membership for China, still must survive the gauntlet of the political process (on both sides of the Pacific). Certainly, not every company with "China" or "Pacific" or something of that sort in its name will benefit or thrive from a new trade deal. Some may. The problem for investors – avoiding the frenzy and choosing the winners.
©1999 Stock Patrol.com. All rights reserved.
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