March 31st, 2011
06:01 AM ET

Gold rush for Chinese internet stocks

Oh, if only we could predict the future, then we might be millionaires today.

This week News Stream, CNN International’s news and tech show, is focusing on some of China’s hottest tech stocks. The business segment I suggested for them: how much money would you have made if you were smart – or lucky – enough to have invested early on and cashed out today. The answers might make you shake your head and wish you had put up some money. Or they might make you smile a bit broader as you head out for your steak and lobster dinner.

Five years ago, share prices for Baidu, Tencent and Sina were affordable to many more investors, ranging between $5 and $30. Today that range has rocketed to the $100 to $200 level – and out of reach to the casual buyer.

Baidu’s performance chart shows its stock price hurtled nearly 2300% higher between 2006 and 2011. It’s now China’s most popular search engine and lays claim to 75% market share in China’s search engine industry – helped in part by Google’s pullout in early 2010.

Tencent’s stock jumped nearly 1400% in the same period. The one-stop online shop for all things digital – from downloading music to dating services – actually owes much of its huge popularity to QQ, China’s premier instant messaging service. And if estimates are true, QQ has the world’s largest online community with more than 600 million users.

Sina’s stock price popped about 270% between 2006 and 2011. The hot news and blog site gets 3 billion page views a day, according to some estimates. And a good deal of Sina’s macro strength in the online world actually comes from its microblog, known as Weibo. That’s China’s own version of Twitter, as the U.S.-based blue bird-branded microblog is blocked by the Great Firewall.

So you might think, “So what? We couldn’t have known to put money into these tech stocks five years ago.” And you would be right. But if you looked at the rising trajectory of stocks before the 2008 global financial crisis, and you were smart enough to have reinvested in lower-priced stocks at the first signs of the recovery in 2009, then you could have made off like a bandit.

In effect, the 2008 global financial crisis ended up being a kind of ‘reset button’ for stocks. It allowed for re-entry and rewards for investors willing to brave some risk. If you invested in January 2009 and held your positions until today, you would have still seen amazing growth performance: 650% for Baidu, 350% for Sina, 235% for Tencent. All in just two years.

In real money terms, if you had invested $10,000 in each of those tech stocks these figures are approximately what you could have cashed out with today: $33,000 out of Tencent, $45,000 from Sina and a whopping $75,000 out of Baidu.

Looking ahead, is it too late to invest in these companies? I asked a tech analyst at Citibank Hong Kong this question and she said it depends on your time horizon. You would need to stay in for at least two to three years. Anything less and your money might be better invested elsewhere. Share prices for Baidu, Sina and Tencent are already high and it would take that much longer to see a return on investment with which you might be happy.

As for a stock pick, she said Baidu is the safest because it’s not too volatile and it’s enjoyed good earnings. Relatively, Tencent is the least safe because it still has much to invest in its e-commerce division, R&D and sales and marketing. Admittedly, no one would say no to Baidu’s 650% growth. But few of us would say no to Tencent’s 235% growth either.

Global investors who missed out on the first tech gold rush in China appear eager to not make the same mistake again. When Chinese internet company Qihoo 360 went public on Wednesday on the New York Stock Exchange, shares immediately doubled on opening, according to CNNMoney. The company had priced its stock at $14.50, but soared as high as $33.40 it’s first day of trade.

soundoff (8 Responses)
  1. skshet

    good to note ecommerce doing well finally , augurs well for other markets too , visit http://www.einidarteail.blogspot.com

    March 31, 2011 at 10:52 am | Reply
  2. Nuno

    The chineese very own DOT-COM bubble ?

    March 31, 2011 at 1:49 pm | Reply
  3. Abu

    What bubble? The ride have just begun. All you red necks and China bashers should knbow where the future lies. Pack up your bags and head to China to seek your fortune. China is really THE land of opportunity in this century.

    March 31, 2011 at 4:38 pm | Reply
  4. Nick

    Sure, but there's a lack of discussion as to how you can actually "sell" your stock and get money "out" of China. Even with such performances, I wouldn't invest.

    April 1, 2011 at 9:28 am | Reply
  5. Rocky

    China is really a amazing place where full of opportunities

    April 12, 2011 at 5:41 pm | Reply
  6. Abraham Fellner

    i found this blog on google, so glad i did ,i will recommend this blog to all of my friends THNX

    June 12, 2011 at 2:10 am | Reply
  7. harv_y

    The real big potential in Chinese stocks is hidden in the badly beaten down RTO sector. If one spreads investment across a dozen or so picks there, and accepts possibility of a few likely failures, some of the remainder will show huge investment success for substantial net gain.

    July 4, 2011 at 3:40 pm | Reply
  8. Penny Stock Alerts

    Good thought. Well done!

    October 5, 2011 at 7:06 am | Reply

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