Gome Retail Holdings (HKG: 0493) (OTCPK: GMELF) shares are up 30% again. Quite why isn’t really know, but then that was true of what happened to Gome shares last week as well. Our point here being not that Chinese retailers are a bad bet at all - it’s that Chinese retailers don’t offer us the information flow to be able to trade the shares of China retailers. In fact, other than the very largest China stocks this is true of all of them. We out here in the English speaking world simply are not plugged in enough to what’s happening on the Mainland. Therefore it’s near impossible for us to predict what is likely to happen - rather a precondition of being able to position ourselves correctly in any trades we might want to undertake.
There’s this example from Gome Retail: “GOME Retail Holdings (HKG: 0493) (OTCPK: GMELF) shares are up 80% in Hong Kong today on the back of a truly weird story. It’s not really possible to confirm this given the language and media barriers to getting useful information in a timely manner from Mainland China. But the story is that GOME is going to open 10,000 stores in the next 3 years. Which seems very unlikely to us. Not just the reality of opening that many stores, but the announcement of even having it as a target. We just don’t see physical retail as working quite that way these days.”
It really did strike us as a weird thing to be claiming. It also turned out not to be true, which is why that share price rise faded away.
Gome Retail Holdings share price from Google Finance
The explanation was this: “Shares of Gome Retail Holdings, a cash-strapped Chinese home electronics retailer, plummeted after the company dismissed reports that said its supermarket unit plans to open 10,000 outlets within the next three years. Gome Retail [HKG: 0493] closed 23 percent down at 4 Hong Kong cents (less than 1 US cent) a share in Hong Kong today, after swinging between a gain of 8.9 percent and a loss of 25 percent. Gome is not a party to the proposed supermarket business, which it understands is operated by Wong Kwong Yu, a major shareholder,....Gome Supermarket, owned by a unit of Gome, operates with brand authorization and not as a franchise,”
The subtlety of the actual proposition was clearly lost in the translation and information transmission. Which highlights exactly the problem we’re pointing to. Information from the Mainland reaches us in fragments and late. Which makes trading Mainland shares (even if HK quoted) really rather difficult. It also rather explains why we don’t know why Gome shares are back up again too.
