2. How they cluster on SOM of S&P500
3. Statistics of each cluster
4. High PE of Cluster S3: CEA and ZNH
5. 12-m return % map
6. High Price/Sales ratio of Tech ADRs 
6. Beta map 
7. Forecast 1-m return %
For explanation on technology, methodology and terminology, see: http://www.technifundamentals.com/2010/07/explanation-page.html .The Singapore Exchange [SGX] has announced that in an Agreement with NASDAQ, from October 22, nineteen China ADRs can also be traded on SGX. The list of these ADRs is in image 1. *All the fundamental data on the 19 ADRs are extracted from ValuEngine, and if you subscribe to their service, you will be able to track the ADRs in greater detail. The key question is whether, since these ADRs are also listed on the American market, will their performance be heavily influenced by performance in that market? As we have seen in a previous post, ADRs of emerging markets, as they grow bigger, will mature and behave just like any other global Blue Chip. So if you are looking for outperformance, it is best to look for those ADRs which not only have room to grow, but are not yet behaving like the big caps, maybe because of the different type of investors they attract.
1. Image 2: Contrary to what one may think, the 19 China ADRs have a wide range of characteristics in their fundamentals and technicals. Plotted against the backdrop of the S&P500, they are present in each of the three clusters. Stocks in S1 and S2 are more typical of the S&P500 component stocks, while S3 stocks are more different. While the average Beta of the ADRs is low [below 1.0], ADRs like China Aluminum, Yangzhou Coal Mining and Suntech Power have Betas >2.80.
2. There is only one stock on S2 and that is STP Suntech Power the solar energy Company. The other solar energy Company TSL Trina Solar, although about the same size in market cap as STP, is in S1 and has more similarities with YZC Yanzhou Coal Mining.
3. The most differentiated cluster is S3, and it contains the two Chinese airlines CEA China Eastern and ZNH China Southern. There are some indications that these two stocks will have higher performance in the short term. Their P/Es are very high [see image 3 the P/E bar], but their valuation % is low. Their 12-month return % has not been impressive but their 1-month forecast return % is highest among the 19 ADRs. Finally, and unusually, their Beta is also very low: 0.51 and 0.62 respectively
4. As is to be expected, the tech Companies like Netease, Shanda and Mindray medical have high Price/Sales ratio. In terms of stability, these are also the stocks whch have high 5-year Returns: Neteast, Shanda, Mindray, Ctrip, Home Inns. Changyou and Baidu. Unfortunately we do not have market/book data on these ADRs.
4. As is to be expected, the tech Companies like Netease, Shanda and Mindray medical have high Price/Sales ratio. In terms of stability, these are also the stocks whch have high 5-year Returns: Neteast, Shanda, Mindray, Ctrip, Home Inns. Changyou and Baidu. Unfortunately we do not have market/book data on these ADRs.
5. In summary, if you have intention to invest in these ADRs, it is better to focus on those that have not performed as well, are less similar to the S&P mainstream stocks, and are still Undervalued. You can see from the difference in length of bars of model variables in image 3, that only ZNH and CEA are significantly different in characteristics from the S&P 500 components. S2 ADRs are not so different. [length of bars represent standard deviation from the Mean of the whole data set. S1 approximates the S&P500. This is verified by the fact that its Beta is 1.011 where S&P500=1.0]. Note# with greater liquidity and participation when they are tradeable in Singapore and available to more Asian investors, the characteristics may change, and then these 19 ADRs will be less attached to the American market.
Note 2# The SOM above was constructed with long term fundmental and technical variables. For those who would like short term technical analysis of each of these ADRs can send me an email.
