Can value investing work in China market?

USA today has an interesting article regarding Chinese investors (speculator more precise) learning a tough lesson in the domestic stock market. The article used two example to explain:

China stock exchange pic
(Picture source: USAtoday.com)

In October (2007), Wang, 45, invested $2,800 in a Beijing real estate firm, chosen, Wang explains, “because it’s called an ‘Olympic stock,’ and ought to do well.”

But now Wang’s beginner’s portfolio is down almost $1,000, over three times her previous monthly salary.

Example 2 (quote from the article) again:

Former soldier Ying Jie prefers the term “mature trader” to “speculator.”

After 14 years playing the markets, Ying, 50, has amassed a $56,000 portfolio. Recent turmoil has cost him 7% of its value, he says.

“It would have been (off) 20% or more, but I follow the process closely and know when to buy and sell, so I can avoid big losses,” he says.

In the article Michael Pettis, a professor of finance at Peking University, also suggested Chinese market is very speculative. Again quote:

China’s market, split between stock exchanges in Shanghai and Shenzhen, a bustling city that now dwarfs its neighbor Hong Kong, is “completely speculative, in a technical sense,” says Pettis.

He implied value investing, Buffett’s main strategy, will not work in China.

My take
Buffett’s rule does not apply in China?

Well, Buffett won’t buy Chinese stocks now, and (using his rule) won’t make you money, but it will prevent one from losing money.

Second, if we wait patient, when the market correct more, we will eventually find some gems (values) in Chinese market.

Appdendix:
A post on Google finance message board titled Chinese loves gamble
======
What explains the run-up in most Chinese stocks? Some have a good
fundamentals…many others follow, in my opinion, a more widespread
Chinese love for gambling. Anybody who has been to China will notice
this love right away, from taxi drivers on the streets gambling with
buddies in their limited offtime to families of peasants pooling their
money together for bets on the domestic exchanges. In my own two years
there I have never seen a nation more enthralled by games of chance.
Darn good thing the government keeps casino gaming confined to
Macau!!!

In the words of Hu Xingdou, an econ professor at Beijing Institute of
Technology: “Chinese are the biggest gamblers in the world. Thousands
of years under an imperial system that tries to keep people down leads
to a mentality of trying to become super-rich overnight, preferably
without the hard work.” …super rich overnight without hard work.
Sounds good to me!!!

http://finance.google.com/group/google.finance.710160/browse_thread/thread/69c354d760d1c9e6

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