I'm closing Chinese small cap
ShengdaTech (SDTH); I was going to type "it's the wrong stock for this type of market" but then I realized there is no right stock for this market. But in a market devoid of risk taking I see now 20,30,40 interesting Chinese small cap names that languish and no one will touch them. I expect at some point in the next 6 months when animal spirits return to this market for a few weeks many of these Chinese small caps will double within days from such extreme levels of valuation, but just not for me at this point to watch the stock look like a cadaver. I can't even use valuation as an excuse to justify this one because at 7x 2008 earnings for 30-40% type of growth, it is now more expensive than half the stocks we own and another 100 or so on my watch lists. I can now buy mid caps for half that valuation with much larger market caps that mutual funds will feel safe buying when the market acts half rationally; these small caps are dominated by retail investors and hedge funds - neither of which seems to have any conviction in buying. As I've said before it really does not matter the valuation if there is no one to buy it.
We
started the position on August 18th and are taking a
9.2K loss on the remaining
1.0% position we hold. There is an earnings in mid November as a potential catalyst but for these type of stocks you just need a reduction in risk aversion. When that day returns is anyone's guess. Technically, the stock is at the top of a recent range - one could argue that its forming higher lows or a double bottom or something of that sort but technical analysis has been quite useless so I'm just selling and focusing elsewhere, knowing at some point in 2009 I'll look back and say "I sold that name at $4.80!?!"
No position
