China’s benchmark Hang Seng index wasn’t having the best stretch since late last year, but Janet Yellen’s comments that a tightening of rates could come sooner rather than later did not sit well in the Far East. Chinese stocks dropped nearly 2%, sending the Hang Seng index into the dreaded bear market since it is now down 20% since December 2nd.
U.S. stocks are faring better today, but ripples abroad do tend to make waves, eventually. “You are interested in the Chinese market,” says Jon Najarian, co-founder of optionMONSTER in the attached video. “Over the last week or so, Chinese internet stocks are down 15 to 20%, some of them that much in a day. So that’s been a real area of concern,” he says, and rightfully so. “The revenue that they were generating…that was already accounted for, and the numbers were still so bad.”
But it’s not just high-flying Chinese internet stocks. Chinese commodities and materials companies are down, including Warren Buffett's big bet on electric cars, BYD. The battery and electric vehicle maker slid an astounding 14% today, hitting a five-year low.
Najarian voices concern that many have suspected, that there is a severe demand problem for goods in China outside some of the major cities. Not to mention issues that have occurred with accounting. “I’m one of them,” Najarian says of individuals frightened by the lack of proper accounting standards in China.
Weakness in China may also affect one of the most hotly anticipated IPOs, Alibaba’s. Wall Street is expecting Alibaba to push over $150 billion in valuation, possibly raising more than $16 billion in a U.S. filing, which would be the largest IPO since Facebook (FB). “If China continues in a weak mode,” Najarian says, “that’s not good for the Alibaba IPO,” since Alibaba’s value is predicated upon growing demand among the Chinese for goods and services.
Najarian ultimately concludes that longer term, you do want be owning certain Chinese stocks, but that you need to “scale into them,” or buy small chunks on weakness.
Disclosure: Yahoo owns a 24% stake in Alibaba
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