Chinese Penny Stock Mania

Feb 3rd, 2006 (Google blog showed the wrong date!)


I noticed that Chinese penny stocks listed in America are usually more volatile than penny stocks from other countries. In the past few days, there was a mania sweeping through almost all China related little stocks, some them are:
Ticker MktCap Close 2 week performance
CHNR 23 M USD 18.5 517%
CTDC 108 M USD 9.64 442%
CAAS 225 M USD 9.98 43%
NINE 234 M USD 6.7 18%
CESV 194 M USD 9.85 15%

Other small cap Chinese stocks were to some extent boosted by this mania. Those bigger Chinese companies such as SINA,SOHU,NTES,SNDA were not affected.

I guess this phenomenon could be attributed to a few factors:
* Penny stocks are easy to be manipulated.
* There are many Chinese in America who by instinct pays more attention to movements in Chinese stocks.

There may be some hidden values in these penny stocks, but except a few names such as CYD,CESV, I see little basis to buy and hold any other little Chinese stock. When the heat cools down, someone will be fooled.

Today ACTS, a leading MP3 player chip maker in China, gets upgraded to Buy at WR Hambrecht with 12$ target, the stock closed at 8.45, up 97 cents from previous close. If we look at current valuation, it appears to be very cheap. I guess the key is how sustainable revenue and earnings will be in the coming years. I am cautiously optimistic about this stock at current price level.