Your Daily Profit

October, 29 2009

*****In Xi’an

*****Local Color

*****China Natural Gas

Fellow Investor,

We’ve landed in Xi’an, one of China’s biggest cities.  Not long after touching down, we connected with my brother who flew in from Chengdu.  He’s been living there for over a year now.

Xi'an appears to be undergoing continuous growth. No matter where you look, you see cranes in almost constant operation. Old buildings are being taken down and replaced with new ones. Much of the new construction is designed to look like the old, both inside the walled city center and outside of "downtown" near our hotel. Even the strip malls are built to look as though they are 1,000 years old.

View of Xi'an, China. These are "clear" skies.

The Xi’an area is best known for the Terracotta Army which guards the tomb of the first emperor of China. These life-sized clay warriors were buried in underground vaults over 2,000 years ago. Discovered in 1974, the vaults are still being excavated, and the warriors reassembled. It's estimated that there are over 8,000 hand made clay soldiers in three separate vaults.

*****Xi’an is a bustling city. Like Beijing, the weather has been warm in the 60s and cloudy most days. Both Xi’an and Beijing are located in valleys, surrounded by hills and mountains. While the locations provided protection from invaders centuries ago, the locations today helps contain the pollution and contribute to smog and cloud filled skies on most days. Since our arrival, we've seen blue sky only once. Whether this is due to pollution or weather is hard to say.

Not surprising, the roads are crowded all the time (I've seen worse though, in Nairobi, Kenya). Traffic lights and signs appear to be interpreted more as suggestions, rather than being considered law. Despite the chaotic roads, there are few accidents. And when there is a fender bender, the two individuals try to determine among themselves who is at fault.  They bargain to come to an agreed upon settlement, paid in cash on the spot.

China certainly appears to be developing, but not developed. At popular tourist sites, we Westerners are outnumbered 50-to-1 by Chinese natives who are on vacation visiting the same sites. Our guide tells us that for most of these Chinese, this is their first visit to these places.

Travel has become increasingly popular among Chinese in the ten or twenty years as income has risen and the middle class has grown. Certainly domestic travel can be viewed as one measure of the local economy and for consumer sentiment.  By my eyes, both appear strong.

*****As I mentioned on Monday, Xi’an is also home to one of my favorite Chinese companies, China Natural Gas (Nasdaq:CHNG). The recent sell-off in this stock has left the trailing P/E below 10. We picked up CHNG in my SmallCapInvestor PRO service back in May when it was trading at just $6.14. We knew natural gas plays in China presented great opportunities, but what really got us excited was a very brief mention that the company was looking to move from being a bulletin board stock to the Nasdaq. Based on our review of the company’s numbers we knew it was pretty much a sure thing and once it moved onto a major exchange the share price would take off. And it did. If you’ve been looking for a good entry point for China Natural Gas, the current price around $11 is attractive. (And if you’re looking for more stocks with potential like CHNG I invite you to check out my SmallCapInvestor PRO service. Click HERE for more.)

Until tomorrow,

Ian Wyatt

Editor

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