GaveKal’s latest research piece on China is a brilliant and thought provoking read on the countries future and how investors can position themselves to profit in today’s uncertain world. It can be found here, and in our opinion is one of those rare pieces of research where investors should read it at least two or three times just to ensure they take it all in (yes, its that good).
On a related note, AAOI has been short the Chinese index for a couple of months now for all of the structural reasons so clearly articulated in GaveKal’s piece and has been in the process of trying to put on the other half of what could be called our “arbitraging China’s paradigm shift” trade. The last few weeks we’ve been tearing through 10-k’s in search of stable, high quality fast growers trading at deeply discounted prices to their intrinsic business values, that have been and will continue to benefit from the rise of the chinese consumer.
In particular we are working on putting together what we call the “legitimate small caps priced as if they are frauds” basket and figured why not open up some discussion on the topic with our readers in order to gather as much input as possible from other savvy, risk-averse value investors in the process. These are opportunities that appear to be highly profitable and rapidly growing, yet are trading at low single digit multiples to earnings and that assuming they are real businesses could easily go up 5, 10, 20x over the course of the next 10 years as the emerging “megatrend” noted in the GaveKal piece plays out. With that in mind, below is the list of the potential candidates that we are considering doing the work on over the next month or so, so any insight from our fellow readers would be very much appreciated.
Anyhow, here is our initial list (please feel free to email us or comment on any other opportunities you think are worthwhile to dig into)…
Again, email us or post a comment if any of you have any thoughts or unique insights into the opportunities listed above. Happy hunting!