SAN
FRANCISCO (MarketWatch) -- Stock-market bulls have been rampaging
through China's shop, charging at companies leading the country's
astonishing growth, and investors who are just browsing can either
follow or get out of the way.
Rob Lutts is one customer who's ready with his checkbook -- and
phrasebook. Lutts is based in Salem, Mass., where he's chief investment
officer at Cabot Money Management, an independent money manager for
wealthy clients. For him, it's a great leap forward from Salem to
Shenzhen.
"Every time I've gone, I've gotten more confident about the changes
they've undertaken in terms of adopting free-market initiatives and
letting entrepreneurs grow their business," says Lutts, who travels to
China a couple of times a year for research.
That confidence was on
display in three Chinese companies that Lutts recommended in a July
interview for MarketWatch's column "The Stockpickers."
The stocks Lutts chose
gained 25.8% on average in the 13 weeks after he named them, propelling
him above rival investors to win the MarketWatch Stockpicker of the
Quarter award.
In winning, Lutts
surpassed 14 other investment professionals featured in MarketWatch's
column "The Stockpickers" in the third quarter of 2007. In these
stories, investors choose three stocks whose performance is then
tracked over the following 13 weeks -- the last period of which began
Sept. 27 and ended Dec. 27.
Chosen stocks can be
domestic or international, covering all market sizes, investment styles
and industry sectors. Each stock picker is reviewed on how selections
performed from the closing price on the nearest trading day before the
story is published through the closing bell on the nearest trading day
13 weeks later.
Lutts scored a big winner in Baidu.com Inc.
(BIDU:baidu com inc spon adr rep a
Last: 335.84+6.59+2.00%9:31am 01/14/2008
Delayed quote data Sponsored by:
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BIDU 335.84,
+6.59,
+2.0%)
, the Internet search giant. Shares of Baidu surged 48% from the close on July 13 through the end of trading on Oct. 12.
Click here to read the full story.
Another selection, travel agency C-Trip.com International Ltd.
(CTRP:ctrip com intl ltd adr
Last: 53.84+0.26+0.49%9:31am 01/14/2008Delayed quote data Sponsored by:
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CTRP 53.84,
+0.26,
+0.5%)
, finished the 13 weeks up 15.2%. The third stock, New Oriental Education and Technology Group
(EDU:new oriental ed & tech grp i spon adr
Last: 79.61-3.89-4.66%4:01pm 01/11/2008Delayed quote data Sponsored by:
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EDU 79.61,
-3.89,
-4.7%)
, added 14.1%
China's emergence as an economic power is of course well known, and its
booming stock market reflects that. Mutual funds dedicated to China
soared 55% last year on average and are up 36% annually over five
years, according to fund-data firm Lipper Inc. In the 13-week period
between July 13 and Oct. 12 alone, China funds averaged a 28.1% gain
compared to emerging-markets funds' 9.8% return and a paltry 1.1%
showing for the Standard & Poor's 500 Index
(SPX:S&P 500 Index
Last: 1,407.05+6.03+0.43%9:45am 01/14/2008Delayed quote data Sponsored by:
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SPX 1,407.05,
+6.03,
+0.4%)
.
Buy what China needs
The Chinese market's blazing track record, coupled with its extreme
volatility, can keep investors from sinking even a small amount into
Chinese stocks.
"Most people are too
afraid to invest in China," Lutts says. It helps that he's a
growth-stock investor who tries to identify big themes or trends and
stick by them, often for years.
China is a prime example.
The country's robust manufacturing and industrial activity is making
people richer. Naturally, they want to buy more and better things. So a
factory worker trades in his bicycle for a motorcycle, and a banker
sells her motorcycle and buys a car.
Such wealth creation may
be familiar to Americans, but it's unprecedented for China. These new
consumers present the most exciting investment opportunities, Lutts
says.
"The size of the middle class there is going to be bigger than the entire population of the U.S.," he notes.
Lutts isn't shy about putting 40% of his most aggressive clients' money
into emerging markets, with about half of that earmarked to China.
Typically, investment advisers recommend having no more than 5% of a
portfolio exposed broadly to emerging markets, let alone a single
country.
Lutts, however, is enthusiastic about China. "We're going to get decades of good performance," he predicts.
To those who say Chinese stocks are overvalued, Lutts has a straightforward message: Get used to it.
"China is not going to be cheap until the growth is over," he says.
"We're going to be in the highly valued category for a long time. If
you expect to buy great growth at value prices you have to go to
another planet."
Chinese stocks' upward
march won't be unbroken -- corrections of 10% to 15% every six months
or so should be expected, Lutts says. But he admits to being glad when
he hears other investors question anyone who would buy into what they
see as a richly valued market that shows telltale signs of a bubble.
"When they stop asking those questions," he says, "I'll start to worry."
E House China Holdings
Consumers are still the focus of some new recommendations from Lutts.
Chinese are making -- and spending -- more money, so families move out
of rentals and buy houses. E House China Holdings Ltd.
(EJ:e house china hldgs ltd adr
Last: 26.23-1.63-5.85%4:04pm 01/11/2008Delayed quote data Sponsored by:
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EJ 26.23,
-1.63,
-5.8%)
is in the business of selling those homes. Lutts calls the company the
"Century 21 of China," in reference to the global network of realtors
(which itself has a presence in China).
"Real estate in China is
going to be a tremendous way to invest," Lutts says. Importantly, E
House owns a multiple-listing-service that is an attractive asset, he
adds.
U.S.-listed shares of E
House China Holdings hit a 52-week high of $36.45 in October, but
closed Tuesday at $26.23, down $1.63.
