What value can you find in China?

I recently have challenged a Nobel Prize laureate, economist Paul R. Krugman. In his recent speech, he predicted the China’s economic situation would deteriorate and is not the place for investment in the near future. I agree that China is facing some significant challenges at the moment and will undergo a tough time period. But this does not mean Chinese market will be doing badly. On the contrary, I have said China’s stock market is very attractive actually at the moment and may return handsomely to brave investors. People, especially foreigners, often don’t understand the true nature of China and they often significantly underestimate the will power and tenacity of the Chinese people and the Chinese government. I’m already in and I don’t think I will be out of the Chinese stocks any time soon.

If you also believe me and would like to take the risk to put some money in China, one stock I think worth considering is Nam Tai Property (NTP). This is a company originated from Taiwan. It used to be a very successful electronic manufacturer 5-10 years ago, when electronic products were widely demanded in China. I made some money 3-4 years ago with this stock. But now electronics is a tough business to do in China. The NTP management is a great forward-looking team with excellent vision. They used their excessive cash to accumulate land-use rights in China, mainly in Shenzhen (Gushu and Guangming), over the past few years. Now they have successfully transformed into a real estate company controlling a large amount of land-use rights. While the real estate business is facing headwinds at the moment, I think they will come back, especially in the place like Shenzhen. They will only become more attractive when the economic activities recover.  The thing attracting me most is its fortress balance sheet. It has no debt but abundance of cash in hands. In other words, there is virtually no credit risk for NTP. Thanks to the misunderstanding of “investors” about this company, apparently not many people are interested in it and its share price has recently been significantly driven down. It is so cheap that you are basically paid to buy NTP: at the moment NTP is trading at $5 per share but it has cash $6.94 per share. This is almost like you buy a house worth $100K and find it has almost $30K cash on the table when you move in. Will you take it? I definitely will. This reminds me of the same situation for Yahoo 2 years ago. I pounded the table to recommend to buy when it was traded at $15 or so. Those who followed me are certainly very happy today. I expect the same will happen to NTP eventually. When people finally realize the value of it, they will jump in and go crazy. If you want to make money, be the first ones to lead, not to follow. Of course I cannot tell you when this day will come for NTP’s value being recognized but I’m fine to be paid to wait.