Buy This Piece of Crap! china/divide’s (Bad) Stock Tips

It’s easy to poke fun at just about any profession. As a lawyer, I’ve certainly had to put up with my fair share of tasteless jokes aimed at my livelihood. As a blogger, my approbation is usually turned towards members of the press who periodically say ridiculous things or get their facts wrong.

Moreover, if there is one subset of the media worthy of a large volume of rhetorical slings and arrows, it has to be the financial press, specifically those who cover securities markets. I’ve had my fun over the years pointing out contradictory descriptions of market activity that are published on the same day, absurd “explanations” of why a market moved in a particular direction, which are often made with absolutely no basis in fact, and the mind-numbing, day-to-day relation of technical minutiae dressed up and packaged in a pathetic attempt to give the story more “zazz.”

One of the more common incarnations of the stock market feature article is the list of companies that you haven’t heard of, companies that are diamonds in the rough, companies that are poised to “break out” and achieve their true place in the portfolios of really smart people. Message: best to buy now before those prices reflect reality. This caters to everyone’s desire (not just our friends in Guangdong/HK) to be an insider, looking smart and making piles of cash.

These lists are created by a variety of techniques, including tried and true valuation analyses in addition to other more ‘creative’ methods including payola, random chance and my personal favorite, the monkey and a dartboard. And you can’t argue with the monkey’s results; he consistently outperforms the S&P 500 year after year.

A recent case of dubious list compilation generated a lot of chatter on Twitter yesterday amongst the usual tweetering China twits. I hope I got my terminology correct there. You kids and your funny new words.

Anyway, the object of discussion was a list of 19 Chinese brands that were poised for greatness. The list was prepared by a couple of CFAs that write for The Business Insider; the article was written in the “The Money Game” section, the name of which makes me want to hurl. The problem begins and ends, really, with this misleading and highly problematic headline:

The 19 Must-Know Chinese Consumer Companies That Are Taking Over the World And Growing Like Crazy

Let’s take that apart a bit. First, “growing like crazy” is red meat to the stock picker crowd of course, designed to initiate salivation and wire transfers. The authors were smart enough not to also insert the word “cheap” into the headline; coupled with a suggestion of high growth, an additional suggestion that these stocks are at rock-bottom prices may have led numerous folks on “The Street” to experience spontaneous orgasm.

But I digress. The second interesting bit there is “must-know,” which is curious. Who must know? Why must they know? What will happen if they don’t know? The answers are obvious, if rather stupid: a) purchasers of stock, b) because they can’t afford to miss an opportunity like this, and c) because if they don’t, they will be branded as losers and die penniless (i.e. five-figure income).

So far, all of this describes your garden variety empty financial press type article. But wait, there’s more. Third, “taking over the world.” This is the language that jumped out at me and, I suspect, my fellow China pundits. What can this possibly mean, for a company to take over the world?

(After some thought, I suspect that this hyperbolic language is common in these types of articles, and the authors probably just equate “taking over the world” with “growth rates in excess of 20% on an annual basis.”)

Call me an idiot (wouldn’t be the first time), but saying that a Chinese company will “take over the world” in a discussion of growth suggests expansion overseas, an international branding strategy, and inroads into new markets. The authors never really say this directly, leaving us with this lead-in to their “You gotta buy this stuff” list:

[D]espite all the hype about China, many of us really don’t know many of the new consumer names. Even though as investors we’d be smart to have a clue. So we put this list together. Feel free to suggest even better names.

Indeed. You’d think that investors would have a clue. In fact, like most financial press articles, this stock picker piece has the usual disclaimer in it, telling folks that they shouldn’t just run out and buy these recommendations (wink wink), but should engage in a bit of due diligence  investigatory running about and such (nudge nudge – {stage whisper}: don’t bother, just call your broker ASAP!) – before running out to buy this stuff.

The last interior headline prior to the list itself is this:

How Traders Are Making A Killing Off Of The New Chinese Consumer

Jeebus. Sadly, some people don’t have a clue at all. Amazingly enough, the worst is yet to come. Yes, I mean the actual list. I and my fellow members of the commentariat were expecting a list of Chinese companies that had made overseas acquisitions, expanded into the U.S. or Europe, or which somehow had unique products that looked poised to, well, take over the world.

What did we get? A list of domestic brands that might grow for a while – in China – but have pretty much zero chance of actually going anywhere beyond that. There are a couple of exceptions, but, well, I report, you decide. Have a look:

	China Mobile – “China Mobile is the world’s largest mobile phone operator, with over 500 million customers.” Customers in China. What are their plans for world domination? Anyone?
	Metersbonwe – “Metersbonwe is China’s leading casual-apparel company. It targets a young demographic with their slogan, ‘Be Different.’” That’s some revolutionary slogan they got there. Would it be considered catchy in London or Manhattan?
	Kweichow Moutai – “Kweichow Moutai is a state-owned company that specializes in the production and sale of China’s most popular liquor, moutai.” Great product for the jet fuel enthusiasts. As one pundit cheeped last night, just wait until they try to get past regulatory authorities who actually test this stuff. Maybe Eastern Europe would be a good export destination?
	Beijing Wangfujing Department Store – “Wangfujing is a Beijing-based department store, named for the capital’s popular shopping street.” I got nothing here. This one left my mouth gaping open in shock, my brow furrowed in puzzlement, and my asshole puckered (for some inexplicable reason).
	New Oriental – “New Oriental is the largest provider of private education in China, with a heavy focus on teaching English.” My apologies re: Wangfujing Department Store. This New Oriental suggestion is not just stupid, it’s freakin’ moronic.
	Shanghai Bailian – “Bailian is a vertically-integrated lingerie and swimwear company.” Not sure why we should care that it’s vertically integrated, unless that means they run their own sweatshops and can benefit directly from paying subsistence wages while running three shifts a day.
	Wang Wang (snacky foods) – “Want Want is a food manufacturer from Taiwan. It is the largest rices cakes and flavored drink producer in Taiwan and its products are popular on the mainland.” Some of this stuff has a chance overseas, maybe, but not as ‘Want Want.’ Worst English name ever.
	Tingyi/Master Kong – “Tingyi is China’s biggest maker of packaged food, mostly under the Master Kong brand.” Correct me if I’m wrong, but I believe that many nations already have their fair share of Asian instant noodles, but hey, go for it.
	Mengniu Dairy – “Mengniu Dairy manufactures and distributes dairy products in China. The company was one of many to be indicted in the 2008 tainted milk scandal.” Uh, hey guys, I thought you were trying to sell me on these companies, not scare me into dumping their products in the trash. Now I’m confused.
	China Nepstar Drugstores – “China Nepstar Chain Drugstore is China’s largest retail drugstore chain.” Sure. That market is wide open overseas; not much competition or market entry issues there. This one is a no brainer. {groan}
	Lifestyle Holdings/SOGO – “Hong Kong-based Lifestyle operates a series of high-end department stores, branded SOGO and Jiuguang.” Not as bad as the Wangfujing pick, just slightly less than awful.
	Tsingtao Beer – “Tsingtao is a Chinese beer company that was founded by German immigrants in 1903.” Well, sure, I could see how a product like that might make it in other countries. Maybe Tsingtao could do something in a test market for a couple years to see how it did. After that, they could distribute to a few other places, build up brand recognition and . . . hey, wait a minute. Aren’t they already . . .? Why is this listed . . .? Just forget it.
	ChinaCast Education – “ChinaCast is an education company that operates two universities and a growing sector for e-learning.” Wasn’t this supposed to be the big thing, like, ten years ago?
	Li Ning – “Li Ning is a sportswear company that competes with Nike. The company recently opened its first store in the U.S.” Wait a second. Just hold on. Don’t move. Um . . . yeah. This company actually deserves to be on this list. I just got a warm feeling somewhere down deep in my tiny heart.
	Belle International – “Belle is the leading women’s shoe retailer in China.” More cheap shoes from China. OK, gotta plead ignorance on this one. They do have “international” in their name, though, so, um, I don’t know.
	Gome – “Gome is one of the largest electrical appliance retailers in China. The company was recently delisted for several years following charges of stock manipulation, but it’s back.” Why do I get the feeling that “coming back” from stock manipulation is actually a selling point for these guys? This is obviously an aggressive company; they’ll do well in the future with that can-do attitude.
	C-Trip – “C-Trip is a travel website.” Yes, it is. A Chinese travel web site. That is all.
	Baidu – “Baidu is the largest Chinese-language search engine.” Yes, it is. And it’s going to make a lot of money in the next few years. But it won’t take over the world, just this country.
	Intime Department Store Group – “Intime operates 16 large department stores, including 10 around the city of Hangzhou.” Oh yeah, poised to leap from the Hangzhou market to better locations all around the world.

OK, now that you’ve wasted your time on this rant, why not waste even more time by telling the china/divide community which Chinese companies should really be on the “taking over the world” list. And if you have anything further to snark, I mean say, about the companies above and their prospects for world domination, by all means jump in.