Looking forward, I expect market liquidity will remain benign, especially considering that Fed Chairman Ben Bernanke reiterated the Fed’s commitment to a near-zero interest rate environment for the next two years. Coupled with strong corporate earnings, the current sell-off is more like 1998 than 2008.
There is a growing disconnect between the U.S. economy and corporate earnings. S&P 500 companies are continuing to outpace expectations and post record earnings, with earnings growing by double digits – especially companies that derive their profits from China. I continue to be of the opinion that the strong economy in Asia should help emerging-market stocks outperform for the rest of the year.
The second-quarter earnings season is winding down for many U.S. companies, but Chinese companies tend to report later in the season, so we still have several left to go.
More than 90% of the S&P 500 companies have reported second-quarter earnings, and the season has been quite strong so far. Unfortunately, however, the macroeconomic news has weighed on the broad markets, and even big earnings surprises aren’t always enough to send shares higher.
The sell-off in the past few weeks is the worst in more than two years, but given the current low-interest-rate environment and positive earnings growth – two key drivers of stock-market performance – this selling pressure is overdone.
Here are five of the top China plays
51job, Inc. (NASDAQ:JOBS) reported its financial results for the second quarter of 2011 on Aug. 4. Some highlights:
- Total revenues came in at 332.4 million yuan, an increase of 26.7% from 262.4 million yuan year-over-year.
- Revenues from online recruitment services climbed a whopping 49%, while print advertising revenues declined 27.8%.
- Gross profit for the second quarter increased 34.1%, while gross margin expanded to 71.8%, compared with 68% year-over-year.
- Net income for the second quarter increased 53.6% to 83.5 million yuan, representing earnings per share of 2.82 yuan.
Looking forward, the company expects for revenue to come in at a range of 335 million yuan to 345 million yuan. Overall, the company continues to make progress on its strategic initiatives and has strongly increased spending per employer in its online business, as well as expanding its customer base in existing and new geographic regions.
Shares sold off slightly after the earnings report, since EPS just slightly missed analyst expectations, but investors quickly realized the long-term growth story still was intact and shares quickly climbed back. Going forward, one day of volatility will not affect fundamentals of this company, and I remain bullish on JOBS. Buy it.
Baidu (NASDAQ:BIDU) has inked a deal with BMW to provide its search services inside its vehicles sold in China. The two will work on a platform that will enable car owners to read email, view maps and access other information.
Also this week, Baidu acquired about 40% of Chinese e-book seller Fanshu.com. Both these developments are a positive for the company.
There also is a rumor circulating in China that Baidu will acquire Toudu, one of the leading online video Web sites in China. Toudu is filing for an IPO next week. However, in the current market situation, I am skeptical of how well the IPO will be received. As a result, Baidu might step in.
I think the deal would make sense for Baidu, whose Qiyi video service continues to gain steam in challenging Youku (NYSE:YOKU) and Sohu (NASDAQ:SOHU) for online video supremacy. However, for now this remains unconfirmed, and Toudu is moving forward with its IPO plans.