Capitalizing on Chinese investments listed overseas

With the Chinese market off its highs, will Chinese businesses on other stock exchanges be affected? The answer is most likely not.

Following Baidu

The best indication of Chinese growth comes from giants like Baidu. The search engine superstar has followed in the footsteps of US giant Google, which has posted huge year over year growth rates and a strengthening online advertising sector.

Because Baidu is listed on the NASDAQ, it is unlikely to be affected heavily from the drops in the Chinese stock market. Although the Shanghai index is down 50% from its highs, Baidu has done very well on the NASDAQ. Asian mutual fund outflows are growing. Many of these emerging market investors take positions directly on the Chinese stock markets rather than buying corporations listed on US markets. This alone exempts Baidu from much of the chaos across the Pacific.

Market gravity and its role on pricing

The selling spree also plays a limited role in Baidu’s price because it does not assume the same market gravity that the Asian stock markets are seeing. Baidu’s stock price has followed the same pattern of the US markets, corresponding with all the highs and lows in the US and disregarding valuations halfway around the world. As traders in China take profits and cut losses, chances are they have very limited exposure to Baidu.

There is an added stability that comes from being listed overseas. The developing markets are very susceptible to fallouts. The same Shanghai index that was up 500% in just a few years has now shed 50% of its value. For the most part, China’s stock markets are more speculative than they are indicative of economic change. Profits are still flourishing even as the market sours, proving that the quick money is now headed straight out the fire exit without looking back.

State controlled corporations fall

However, PetroChina isn’t following the same pattern of other US listed Chinese corporations. The stock has shed 40% of its value even with higher oil prices. The pattern suggests that state-controlled corporations still follow the same pattern of Chinese investments. It appears that PetroChina was very much the product of speculation and investments from foreign stock funds.

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