24 Million Chinese Bachelors: Violence or Opportunity for Chinese Online Gaming Companies?

There is a big demographic shift in China: There will be a surplus of 24 million Chinese Men who will not be able to find a wife in China because of the large imbalance of bachelors to bachelorettes.

Times Online (in the UK) has an article on this.

What are the implications of this big Chinese demographic change? Violence? Revolution? War?

Or could this be an opportunity for Chinese online gaming companies? The online gamers are predominantly male and spending time on gaming could be a pastime and serious hobby for those who are unable to find wives.

There are Chinese Online Gaming companies such as:

1. Shanda Interactive (SNDA)
   
2. The9 Limited (NCTY)
   
3. Perfect World (PWRD)
   
4. Giant Interactive (GA)
   

Chinese Demographic: Lonely Young Tech Savvy People Looking for Friends, Fun, and Games Online

Pearl Research Calls them the "Phoenix Generation". These people are China's 16 to 30 year olds who have $135 billion in spending power.

These young people have grown up during China's economic boom, and they are very tech savvy.

Many of these young people are also lonely. Because of China's one child per family policy, these people have no brothers and sisters and are looking for friends. Since Chinese don't normally organize around sports or church, China's Phoenix Generation uses the Web and Social Networks to Fill that void.

According to a joint study by advertising companies JWT and IAC, 16 to 25 year olds in China:

1. Using the Internet to make friends: China, about 75 percent; U.S. 30 percent.
   
2. Going online to find, share opinions: China, about 75 percent; U.S., 43 percent.
   
3. Expressing personal opinions or writing about themselves online: China, 72 percent; U.S., 56 percent
   

Many ideas above from this article.

Profit from this

Chinese Social Networking would be one way to play this.

Chinese Online Games

However a more interesting way is through Chinese Online Games especially MMORPG, Massively Multi player Online Role Playing Games such as Activision-Blizzard's (ATVI) very popular World of Warcraft game.

Many people around the world, especially, East Asians and Chinese, have taken these online games and MMORPGs to a new level.

1. Activision Blizzard (ATVI): Aside from making the popular Guitar Hero and Call of Duty Games, ATVI also owns the World of Warcraft MMORPG franchise. As of 2008, World of Warcraft has a subscriber base of 16 million.
   
2. Shanda Interactive (SNDA): Chinese Online Game Company. They too have MMORPGs.
   
3. The9 Limited (NCTY): Chinse Online Game Company. They have MMORPGs games as well, and they are allowed to operate World of Warcraft in China.
   
4. Perfect World (PWRD): Another Chinese Online Game Company that provides MMORPG (and other) games.
   
5. Giant Interactive (GA): Chinese Online Game Company including MMORPG games.
   
6. NetEase (NTES): Chinese company has an Online Game Service, Advertising services, and Wireless value Added Service Departments.
   

Stock Performance Now

Stock Performance: Aug. 11, 2008 to Aug. 22, 2008

1. SPY (S&P 500 ETF): -0.81%
   
2. QQQQ (Nasdaq ETF): -0.54%
   
3. ATVI: +2.88%
   
4. NCTY: -13.35%
   
5. SNDA: +13.81%
   
6. GA: +5.92%
   
7. PWRD: +0.92%
   
8. NTES: +17.54%
   

PE to Growth Ratio for International ETFs

Vlada, from the Czech Republic (stockweb.blogspot.com), posted a great link.

Vlada looked at several international ETFs and calculated the PEG ratio (Price Earnings Ratio to Growth Ratio) based on a countries 2008 GDP growth and a countries P/E Ratio (the Economic PEG).

The countries with the highest 2008 GDP growth include China (9.3%), India (7.9%) and Russia (6.8%).

The countries with the lowest 2008 GDP growth include Italy (0.3%), the US (0.5%) and Canada (1.3%).

The countries with the lowest PE ratio are France and the U.K. (11) and Italy (11.1).

The countries with the lowest PEG ratios are China (1.6) and India (2.3).

The countries with the highest PEG ratios are Italy (37) and US (26.8)

While one could look at the Economic PEG on its own, I think one additional thing we can look into is the rate of GDP growth, or the direction of P/E ratios. At some point, will China and India growth slow? And will Italy and US Growth start to increase?

International Stock Exposure for Long Term Investor

There are many people out there who want International Exposure for their long term or retirement portfolio, but who do not want to choose individual international stocks.

One good way to approach this is through investing in ETFs, Exchange Traded Funds, which are usually indexed mutual funds that you buy and sell just like individual stocks.

Two core international holdings for a long term portfolio are Barlays' Ishares.com EFA and Vanguard's VWO:

1. EFA: Ishares ETF Covers Developed International Markets including Western Europe, Japan and Australia.

2. VWO: Vanguard's ETF Covers Emerging International Markets including Brazil, China, Russia, India, South Korea, Taiwan and Mexico.

EFA: Developed International Market ETF

EFA has a low expense ratio of 0.35% (the lower the better. Many actively managed mutual funds have expense ratios over 1%).

The top ten countries that the fund invests in are (as of June 30, 2007):

1. United Kingdom: 22.93%
   
2. Japan: 21.05%
   
3. France: 9.74%
   
4. Germany: 8.25%
   
5. Switzerland: 6.61%
   
6. Australia: 6.22%
   
7. Netherlands: 4.10%
   
8. Spain: 4.10%
   
9. Italy: 3.81%
   
10. Sweden: 4.10%
    

Top Sectors include:

1. Financials: 28.48%
   
2. Industrials: 12.02%
   
3. Consumer Discretionary: 11.93%
   
4. Materials: 9.43%
   
5. Energy: 7.58%
   
6. Consumer Staples: 7.57%
   

VWO, Vanguard Emerging Markets ETF

VWO has an expense ratio of 0.30%.

Top Countries:

1. Korea: 16.2%
   
2. China: 12.6%
   
3. Taiwan: 11.9%
   
4. Brazil: 11.1%
   
5. Russia: 9%
   
6. South Africa: 7.3%
   
7. India: 6.5%
   
8. Mexico: 5.6%
   
9. Israel: 2.5%
   
10. Malaysia: 2.5%
    
11. Hong Kong: 2.3%
    
12. Poland: 1.7%
    
13. Turkey: 1.6%
    

Alternative to VWO: EEM: International Emerging Market ETF

EEM has an expense ratio (as of September 28, 2007) of 0.75%. This is higher than Vanguard's VWO ETF.

Some top countries that the fund invests in:

1. South Korea: 15.03%
   
2. China: 12.05%
   
3. Brazil: 11.29%
   
4. Taiwan: 10.50%
   
5. Russia: 9.16%
   
6. South Africa: 8.91%
   
7. Mexico: 7.04%
   
8. India: 5.98%
   
9. Israel: 3.31%
   
10. Indonesia: 2.28%
    
11. Chile: 2.07%
    
12. Thailand: 2.03%
    
13. Czech Republic: 1.95%
    
14. Hungary: 1.92%
    

Top Sectors include:

1. Financials: 20.50%
   
2. Information Technology: 15.46%
   
3. Energy: 15.39%
   
4. Materials: 14.58%
   
5. Telecom Services: 12.17%
   
6. Industrials: 5.88%
   

So in summary, for a long term investor who wants international market exposure without having to pick individual stocks, EFA, and VWO are two ETFs worth investing in as a core part of a long term portfolio.

The Chinese Online Gaming Boom

There's a boom in the video and computer gaming market. Gamestop (GME) the game retailer, has seen its stock soar thanks to the current video game cycle. Recently, Microsoft (MSFT), Sony (SNE), and Nintendo (NTDOY.pk) have released major next generation gaming consoles (Microsoft Xbox 360, Sony Playstation 3, and Nintendo Wii). Gaming software manufacturers such as Electronic Arts (ERTS) and Activision (ATVI) also benefit from this cycle. Even companies like Nvidia Corporation (NVDA), which offer programmable graphic processor technologies needed by game players, benefit.

However, the most intriguing and high growth area of this industry is the growth in online gaming, especially in China.

Online Gaming revenue in China, according to Wu Shulin, deputy Director of China's General Administration of Press and Publication (GAPP), was $1.04 Billion at the end of 2006, and is expected to grow to $3.9 Billion by 2010. The Chinese economy is booming, the middle class is growing, and internet access, especially through internet cafes is growing, trends that are helping the gaming boom in China.

According to the US based market research company International Data Corporation (IDC), there are an estimated 31 million people playing games online in China. Many people, especially those between the ages of 18 and 30, can be seen in packed internet cafes playing online games till the early hours.

There are three main Chinese companies that can benefit from this trend:

1. The9 Limited (NCTY) is a $1.3 Billion Chinese company, with a forward PE of 17.5, a five year estimated growth rate of 25%, for a Price Earnings to Growth Rate (PEG) of 0.7, very cheap (less than 1 is cheap). The company has virtually no debt.

The Company primarily engages in the development of massively multiplayer online role playing games (MMORPGs) for Chinese online game players.

The9 also has the rights to bring Western games such as Blizzard Entertainment's very popular World of Warcraft Multiplayer Online Role Playing game to China. World of Warcraft in the West is part of Pop Culture as evidenced by being prominently featured in Comedy Central's (VIA.B) "South Park" show in an Emmy nominated episode about World of Warcraft. World of Warcraft is the most popular western MMORPG in Asia and the third most popular in China with peak concurrent users numbering 688,000 and revenues of $36.1 million in late 2006.

The9 also implemented a pay-for-time system in the game, differing from the monthly subscription method in other territories.

Electronic Arts (ERTS), the US electronic software producer, will own 15% of The9. As part of the deal, The9 will gain exclusive publishing rights for EA Sports FIFA Online.

2. Shanda Interactive (SNDA) is a $2 Billion Chinese company with a forward PE of 16.84, a five year estimated growth rate of 26.9% for a PEG of 0.62, again, very cheap (PEG less than 1.0 is cheap).

Shanda Interactive engages in development and operation of online games in China including Massively Multiplayer Online Role Playing Games and Online Casual Games such as chess. Shanda maintains a large number of popular games produced by Western, Chinese, and Korean companies, with the Chinese and Korean games being the most popular.

In a recent China online gaming survey conducted by Piper Jaffray, 55 percent of respondents said they prefer Shanda's business model, in which users can play games for free and are charged to purchase virtual items within games. Shanda also tied with competitor The9 as the company in its market that offers the best games.

3. NetEase (NTES) is a $2.04 Billion Chinese company with a forward PE of 13, a five year estimated growth rate of 15% for a PEG of 0.86. the company has a low Total Debt to Equity Ratio of only 0.217.

The company has an online games business that focuses on massively multiplayer online role playing games by selling prepaid point cards to the end user. These cards could be distributed through wholesalers, internet cafes, supermarkets and other venues.

Netease manages Fantasy Westward Journey, the most popular online game in China in terms of Peak Concurrent Users.

The company also has a wide array of internet services outside of its online games business.


Online gaming in China has a bright future. Electronic Arts (ERTS) 15% stake in Chinese online Gaming Company The9 is evidence that US companies believe in the great growth in the Chinese Online Gaming Market. Why not follow Electronic Arts lead and invest in the growth area of the gaming industry: Chinese Online Gaming.

Emerging Market Wireless Telecom Boom

The stock prices of wireless handset makers such as Research In Motion (RIMM) and Apple (AAPL) have been soaring. Buying the handset makers would be one way to profit from the Wireless boom, but there are many other overlooked and profitable ways.

Investing in Emerging Market Wireless Telecom Companies is a great way to enjoy the growth.

Emerging market wireless telecom companies are enjoying better growth than Developed Nations. According to the CTIA - The Wireless Association -, the United States as of late 2006 has a 72% wireless penetration rate. Many countries such as Italy, Sweden and the UK already have over 100% wireless penetration (multiple phones per person). It becomes more difficult to grow revenue in these countries.

In Emerging Markets, however, wireless penetration is much less, allowing more opportunities to grow revenue. As an example, in Latin America and South America, wireless penetration is expected to be 60% by 2010.

In Emerging markets, landline phones can be very limited and wireless can be the only way to make calls. Wireless telecommunication is becoming more important worldwide and people in emerging markets such as India are more willing to use the technology including Short Message Service (SMS, or Texting). Mobile phones are easily becoming part of the worldwide culture.

Here are four good ways to profit from the boom in emerging market wireless telecom:

1. America Movil (AMX):

America Movil is the dominant player in the Mexico and the Latin America and South America region. This $107 Billion company has a forward PE of 14.48 and a five year estimated growth rate of 32.1% for a very cheap PEG of 0.45 (less than 1 is very cheap!) According to a research report from Research and Markets, key drivers are low wireless penetration in Latin America, Increasing Demand of Mobile Internet, and Revenue Growth from Mobile Content.

America Movil is also the company that made Carlos Slim Helu the richest man in the world. Jim Cramer has said that we should "start copying the best guy with the best stock ... Carlos Slim."

2. NII Holdings (NIHD):

NIHD is a spinoff from Nextel and serves the Latin America region including countries such as Mexico, Brazil, Argentina, Peru and Chile. This $13.8 Billion company has a forward PE of 22.48, and a five year estimated growth rate of 40% for an inexpensive PEG of 0.56. Together with America Movil, these two companies offer great growth in the Latin American and South American Wireless market.

3. Vimpel Communications (VIP):

Vimpel Communications services Russia and countries in the Commonwealth of Independent States (CIS), countries that were part of the former Soviet Union. This $21 Billion company has a forward PE of 13.40, and a five year estimated growth rate of 24.1% for a low PEG of 0.56. Major competitors include MTS, and MegaFon, but since VIP is an American Depository Receipt (ADR), VIP remains the easiest Russian Wireless Telecom company to invest in from the United States.

Wireless penetration rates in Russia and Ukraine are a little over 100% but wireless penetration is much lower in Kazakhstan (51.7%), Tajikistan (11.9%), Uzbekistan (10.4%), and Armenia (37%).

Vimpel has a 31.7% market share in Russia, 49.5% in Kazakhstan, 3.8% in Ukraine, 8.9% in Tajikistan, 28.2% in Uzbekistan and 38.2% in Armenia.

4. China Mobile (CHL):

China Mobile is now the world's largest mobile operator with its subscriber base exceeding 300 million. This $233 Billion company's five year expected growth rate is 23.85%. With wireless penetration in China at around 30%, there is still a lot of growth.

Julie Pohlig, senior analyst at Vital Wave Consulting, offers interesting insight into Chinese subscribers. Chinese subscribers rely on pre-paid phone cards and pay 80% less than Americans for mobile phone service but their monthly investment per month represents 7% or more of their salary. This says "a lot about the perceived importance of telecommunications in that society," Julie Pohlig points out.


There are many other good emerging market telecom companies out there, but the four companies above represent good wireless telecom companies that cover a good portion of the emerging markets.

Simplest Buy and Hold Portfolio

So you have some discretionary money that you can risk, don't need the money within five years, and want some growth. But you may not know too much about individual stocks and you don't have the time nor the inclination to follow individual stocks.

Here's a very simple and easy Buy and Hold Portfolio that you don't have to monitor often, and offers good performance and diversification. (Do know that while the stock market averages 10% per year over a long time, that during any individual year, you could lose or gain 40%?)

The strategy is based on buying and holding certain ETFs, or Exchange Traded Funds. An Exchange Traded Fund is essentially a mutual fund (mostly indexed to a particular index. The ETF company just mirrors the index, and doesn't make active stock decisions) that trades on the major exchanges just like a regular stock. You normally buy and sell them and pay commissions. For example, the stock symbol "DIA", isn't really an individual company. The "DIA" ETF represents the Dow Jones Industrial Average ETF. It holds the 30 stocks in the Dow Jones Industrial Average. However, from your point of view, you are buying and selling "DIA" directly, a single trading instrument. You lose money and profit just as if you were holding a single stock.

The Portfolio

Here's the recommended simple buy and hold portfolio that you do not have to monitor that often:

• SPY -- The S&P 500 ETF representing 500 of the US biggest and most influential companies.
  
• MDY -- The Midcap US ETF representing the middle size US companies.
  
• IWM -- The Small Cap US ETF representing some of the smaller companies in the US
  
• EFA -- The iShares Developed International Market ETF representing investments in Europe, Japan and Australia
  
• EEM -- The iShares International Emerging Market ETF which covers international emerging markets such as Taiwan, Korea, China, Mexico, Brazil, Russia and India.
  

That's it! You are diversified throughout the US and the world. You can monitor your portfolio once a year, or twice a year.

If you don't have that much money, you can start with one or two ETFs first. I suggest SPY and EFA as your first two ETFs. The third ETF should be IWM. The fourth should be EEM, and the last MDY.

If you wish to learn more, or even start learning about individual stock investments, you might have to do some studying. You can read the books recommended here, or start browsing some good investment sites on the internet.

Growth in Online Computer Gaming: China, India, Korea, and Japan

China Gaming

The China Gaming market is a very big market. The Chinese middle class is growing and showing their increasing purchasing power. According to play.tm, and according to research from American Market research firm, DFC Intelligence, "analysts predict strong growth for online games in China. Following the trend of South Korea, online gaming is already one of China's favourite pastimes, but it is expected to be worth a great deal more by 2010: 1.7 billion USD we're told. That's up from a 2005 value of about 560 million USD. " "The game market in China is all about online play and charging by usage. There is even a growing market for the items used in games like weapons and characters," states Alexis Madrigal, one of the experts behind the new report."

The three main players in this market are Shanda Interactive (SNDA), The9 Limited (NCTY), and NetEase (NTES). Shanda Interactive and The9 Limited seem the most investable, having MyPEGs of 0.56 and 0.71 (very cheap). The9 Limited has the right to bring Blizzard's World of Warcraft to China. Shanda Interactive also has a good business model. According to a China online gaming survey conducted by Piper Jaffray, "55 percent of respondents said they prefer Shanda's business model, in which users can play games for free and are charged to purchase virtual items within the games. Shanda also tied with competitor The9 Ltd. as the company in its market that offers the best games."

(Analysis of Computer and Video Game Sector here.)

India

Now, what about the India online gaming market? According to a report by San Francisco based analyst and consulting firm Pearl Research (and reported by Gamasutra.com), " online games market in India will exceed $200 million in 2010, as part of a new “Online Games Market in India” report."

According to the report, the "rapid adoption of the Internet with 39 million current users; increasing broadband penetration; growth in Internet cafes with more than 100,000 outlets; and a sizable middle-class with rising disposable income. Most importantly, game operators are promoting and educating consumers about online games including MMOGs."

Local and International publishers are investing in the Indian online games market, as this is one of the few viable publishing models, where "software piracy rates exceed 85%".

However, the $200 Million Indian market by 2010 pales in comparison to China's estimated online gaming market of 1.7 Billion.

Allison Luong, Managing Director of Pearl Ressearch says that "India in 2006 is often compared to China in 2001, when China’s games market started to develop and an online games culture started to form. Within a decade, India has the potential to emerge as one of the top online markets in Asia, along with China, Korea and Taiwan."

India is slow to adopt Online Gaming

However, according to an article by John Ribeiro of IDG News Service (and reported by NetworkWorld.com), the Internet and mobile Association of India and research firm IMRB International (both in Mumbai, India), says the slow uptake in online gaming is partially caused by the "negative perceptions among parents and education institutions." Sohil Kunwar of IMRB says that "Online gaming is considered to be alien and disruptive, and to have an adverse impact on education."

In addition, Sohhil Kunwar says that India has too few broadband connections to homes. There are only 2.21 million broadband subscribers (February 2007), in a country of more than a Billion People.

Opportunity in Indian Mobile Games

In the same report, the big opportunity in India might be mobile games. According to TRAI, "India had 162.5 million mobile subscriber at the end of February. Currently, Indian mobile users can download games from Web sites but are unable to play online."

Korea online gaming

Online gaming in Korea is also very popular. Gravity (GRVY) and Webzen are two popular Korean online gaming companies. Gravity is a small cap publicly traded company (US exchanges) that provides online Games in Korea, but the fundamentals don't look very good. According to an MSNBC article, in Korea, 17 million people play games regularly in a country of 48 million. Close to 70 percent of South Korean households have broadband. And the transfer data speeds in Korea can be up to 50 megabits per second (Mbps). Compare this to AT&T Yahoo! Elite package (DSL) which has download speeds up to 6.0 Mbps. All these, plus the fact that the young people of the country have grown up with the technology help make online gaming in Korea big business.

What about Online gaming in Japan?

Japan, home of Nintendo, and Sony, are more console driven than China and Korea. So, online gaming in Japan is not as popular as it is in Korea and China.