5 Top China Plays Now

Believe it or not, China's economy still is growing at a breakneck pace, with
GDP growth of 9.5% year-over-year in the second quarter. Looking forward, I
expect market liquidity will remain benign, especially considering that Fed
Chairman Ben Bernanke reiterated the Fed's commitment to a near-zero interest
rate environment for the next two years. Coupled with strong corporate earnings,
the current sell-off is more like 1998 than 2008. There is a growing disconnect
between the U.S. economy and corporate earnings. S&P 500 companies are
continuing to outpace expectations and post record earnings, with earnings
growing by double digits especially companies that derive their profits from
China. I continue to be of the opinion that the strong economy in Asia should
help emerging-market stocks outperform for the rest of the year. The
second-quarter earnings season is winding down for many U.S. companies, but
Chinese companies tend to report later in the season, so we still have several
left to go. More than 90% of the S&P 500 companies have reported second-quarter
earnings, and the season has been quite strong so far. Unfortunately, however,
the macroeconomic news has weighed on the broad markets, and even big earnings
surprises aren't always enough to send shares higher. The sell-off in the past
few weeks is the worst in more than two years, but given the current
low-interest-rate environment and positive earnings growth two key drivers of
stock-market performance this selling pressure is overdone. Here are five of
the top China plays 51job, Inc. 51job, Inc. (NASDAQ: JOBS ) reported its
financial results for the second quarter of 2011 on Aug. 4. Some highlights:
Total revenues came in at 332.4 million yuan, an increase of 26.7% from 262.4
million yuan year-over-year. Revenues from online recruitment services climbed a
whopping 49%, while print advertising revenues declined 27.8%. Gross profit for
the second quarter increased 34.1%, while gross margin expanded to 71.8%,
compared with 68% year-over-year. Net income for the second quarter increased
53.6% to 83.5 million yuan, representing earnings per share of 2.82 yuan.
Looking forward, the company expects for revenue to come in at a range of 335
million yuan to 345 million yuan. Overall, the company continues to make
progress on its strategic initiatives and has strongly increased spending per
employer in its online business, as well as expanding its customer base in
existing and new geographic regions. Shares sold off slightly after the earnings
report, since EPS just slightly missed analyst expectations, but investors
quickly realized the long-term growth story still was intact and shares quickly
climbed back. Going forward, one day of volatility will not affect fundamentals
of this company, and I remain bullish on JOBS. Buy it. Baidu Baidu (NASDAQ: BIDU
) has inked a deal with BMW to provide its search services inside its vehicles
sold in China. The two will work on a platform that will enable car owners to
read email, view maps and access other information. Also this week, Baidu
acquired about 40% of Chinese e-book seller Fanshu.com. Both these developments
are a positive for the company. There also is a rumor circulating in China that
Baidu will acquire Toudu, one of the leading online video Web sites in China.
Toudu is filing for an IPO next week. However, in the current market situation,
I am skeptical of how well the IPO will be received. As a result, Baidu might
step in. I think the deal would make sense for Baidu, whose Qiyi video service
continues to gain steam in challenging Youku (NYSE: YOKU ) and Sohu (NASDAQ:
SOHU ) for online video supremacy. However, for now this remains unconfirmed,
and Toudu is moving forward with its IPO plans.