Chinese Stocks Are Back Baby! RENN, CNAM, and DANG Under the Microscope

It's not clear which is more amazing - the fact that Chinese stocks like Renren Inc. (NYSE:RENN), E Commerce China Dangdang Inc. (NYSE:DANG), and China Armco Metals, Inc. (AMEX:CNAM) are up uniformly as a group, or that these stocks are up a whopping average of about 35% since the end of last year despite troubling economic news. Either way, one thing is clear - these Chinese stocks that investors couldn't get rid of fast enough last year have somehow managed to light the bullish fires again.

 By all accounts, they should be on their death bed. CNAM, RENN, and DANG as well as most U.S.-listed Chinese ADRs hit multi-year lows (if not all-time lows) in December after reports that the country' economic growth was still slowing. Exacerbating the problem was the announcement that the state wouldn't turn on the money spigots in an effort to spur economic activity because inflation risk for its economy are already unusually high.

Then again, everything is relative. A 'slowdown' in China isn't like a slowdown anywhere else in the world. Everywhere else, an economic contraction means negative GDP growth. In China, it means GDP growth is 'only' 8.5%. Yeah, it's the weakest in more than a decade, but let's call it like it is - that's still plenty of growth opportunity.

More than that, even a slowdown in GDP growth doesn't necessarily change the acceleration in the growth of China's consumer class. In China, web-enables smartphones are not yet the norm, but they're getting there. In the U.S., nearly 1/3 (90 million) of the entire population already has a smartphone.  In China, only about 50 million smartphones are in use. That in itself leaves a whole lot of room for China to 'catch up', but here's the thing - China's population is 1.2 billion versus the United States' 300 million. 'Catching up with our 90 million users is just the first stage. Assuming comparable adoption rates, that puts the number of foreseeable-future smartphone users in China at 350 million or so... if not more.

That also puts E Commerce China Dangdang Inc. and Renren Inc. in the catbird's seat. See, the Chinese have the same fascination with mobile web that American's do. Given that E Commerce China Dangdang is a, well, an e-commerce company, and that Renren is a social networking and online gaming play, the growth of the tech-savvy consumer base in China is going to pull DANG and RENN along with it. It's got little to do with the industrial-heavy GDP data.

As for China Armco Metals, Inc. it's difficult to say it's a beneficiary of the swelling consumerism in China - it is subject to the country's economic health. Yet, even CNAM is offering a reason for hope (and investment) in the face of what most are seeing as bad news from the state's government. Maybe it's the fact that - against the alleged odds - that the metal ore supplier is still winning new business.

Considering all these stocks have been running so well for two weeks now (on higher volume to boot), it may be time to start acknowledging that more than the worst-case scenario was priced in; the pendulum's starting to swing the other way, especially for Renren, E Commerce China Dangdang, and China Armco Metals.

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