A friend of mine asked me about China Merchants Bank (600036.SS). My answer is basically "it may continue to go up, but the risk going forward is probably very high!". The chart below tells the whole story. (Note the colors follow the Chinese convention: red=good, green=bad; Note 2: The chart has corrected the recent "10-to-13 split").
- CMB's price has been going up just as the A-share market did since the start of the year, as evidenced by the red (good) strength bars at the bottom;
- CMB's price, for the most of the months, under-performed the general market, as shown in the greem strength bars at the top;
- However there were three buying signals and two sell signals during the last six months (the fourth color bar/dots from the top, also annotated with Chinese Buy/Sell words). Each buying signal was alerted when the price was temporarily depressed, i.e., $10-$12. The sell signals were alerted recently when the price was around $18.
Overall I think the best purchase time has long passed. There might be one or two more legs of going up from this point as everybody is talking about stock market right now, but the risk would out-weight the potential reward.
Even if you really like the company, it's better to wait for a market correction which will always occur.
That statement may be true for the whole A-share market!
[P.S.] As I said before, the best way to invest in the A-share market is through ETF, not individual stocks. Many Chinese A-share ETFs doubled this year! That's better than many individual stocks. CMB's performance? 97% year-to-date. Not bad at all! But it's certainly more volatile than the ETFs!
