Chinese indices fell in Shanghai and Hong Kong dramatically on Wednesday following comments from the commerce ministry that export drop can only partially be compensated by domestic stimulus packages. The news sent the Shanghai Composite diving 4.66%, the most in 2009 while H-shares in Hong Kong dragged the Hang Seng Index down 3.03% or 638.987 points.
But as always, when indices fall opportunities rise. The following overbought/oversold indicator is designed to highlight stocks that moved out of proportion and thus offer trading opportunities. But be careful, Chinese ADRs are expected to fall in New York on Wednesday, as well. So if you enter into a long position, do it at the end of the trading after3:30.
Now, let's see the most oversold Chinese stocks - some of them offer great turnaround opportunities. According to the following chart Shanda Interactive (NASDAQ:SNDA), one of the largest online game developer and operator in China, has been punished but will eventually come back to its trading range. Asiainfo Holdings (NASDAQ:ASIA) has been steadily eroding after a big earnings related jump on June 30. China Digital TV Holdings (NYSE:STV) has been trading water since its drop on August 7. Looks as if this stock has more downside potential though. But Guangshen Rail (NYSE:GSH) is on a roller coaster ride for no apparent reason and may be a good stock for bottom fishing. again, expect the stock to fall on Wednesday, so buy it at the end of the day, if you dare. For additional oversold stocks, take a look a the chart below:
Most oversold China stock list
Another set of stocks that are worth watching is the most overbought China stock list. Stocks that are overbought are susceptible for profit taking and thus their upside becomes limited. But some stocks remain overbought for a long time given that extraordinary momentum can carry stocks to irrational highs. At this moment I see three China stocks that are worth paying a close attention to: China Mobile (NYSE:CHL), Focus Media Holdings (NASDAQ:FMCN) and 51job Inc. (NASDAQ:JOBS).
Focus Media (NASDAQ:FMCN) is the most overbought China stock at the moment. The stock is riding on speculations that its core asset sale to Sina Corp. (NASDAQ:SINA) may run into anti-monopoly opposition and not get approval. This would give back FMCN its core business and in this case the stock is vastly undervalued. but it's only speculation and thus is not recommended to touch the stock at this point. for FMCN investors: embrace yourself for a bumpy road ahead.
China Mobile (NYSE:CHL), the largest cellular carrier in the world by subscriber base, jumped 9.7% since last Wednesday following rumors that it has a viable 3G headset. The problem for CHL is that despite a hugely successful GSM network, the company is stuck with a home grown TD-SCDMA network protocol for 3G expansion. And while the network may work just fine, no major telephone maker came out with an appealing phone that can handle both GSM and TD-SCDMA thus limiting the ability of China Mobile (NYSE:CHL) to upgrade current customers to 3G. This in turn hurts revenue and profit growth prospects. So any positive 3G related development will have a tremendous effect on the stock price for CHL.
Another China stock that moved out of proportion is 51job Inc. (NASDAQ:JOBS). The company reported Q2 revenues down 11% but net income rose 7.8% while outlook sweetened. As a result the stock price shoot up 35% but it looks as if this is a pure overreaction and thus JOBS is in a danger zone.