Home Inns: A Long/Short Play on China

SHANGHAI (TheStreet) -- Trying to take a direct long or short position with exposure to mainland China's stock market ranges from very difficult to impossible. However, there are a number of U.S.-listed stocks which are highly influenced by both the Chinese economy as a whole and by the short-term wealth effect of the booming stock and property markets.

For investors with a particular conviction on their views, a number of these stocks are marginable and have tradable options. It's kind of like making your own levered China exchange-traded fund.

One perfect example is Home Inns (HMIN Quote). Operating only in China, Home Inns of Shanghai already is one of the world's largest hotel chains and it continues to expand aggressively. Because it is a service provider (i.e., cost of revenue not based on per-unit costs) and because it has maintained its determination to expand despite the financial downturn, Home Inns' cost-of-revenue line has shown a slow, steady increase, despite volatile ups and downs at the revenue line.

The effect of this on the bottom line is similar to having a large amount of leverage; top-line revenue results are greatly magnified at the bottom line. If Home Inns can successfully bring in business, profits will be fantastic; if there's a slowdown, the results will be dire. The company has more than 500 locations already up and running. It expects to more than double that over the next two years.