Showing posts with label china investment. Show all posts
Showing posts with label china investment. Show all posts

Friday 4 November 2011

Chinese rich are keen to emigrate

Chinese rich are keen to emigrate
Updated: 2011-11-03 11:35

By Shi Jing and Yu Ran (China Daily)






Chinese rich are keen to emigrate





SHANGHAI - About 60 percent of the rich Chinese people, each of whom has a net asset of at least 60 million yuan ($9.44 million), said they intended to migrate from China, a report has found.

About 14 percent of them have either already migrated from China or have applied for migration.

The three most favored destinations by the Chinese rich are the United States, Canada and Singapore. The US is the first choice of some 40 percent of the people interviewed, according to a white paper jointly released by Hurun Report and the Bank of China (BOC) on Saturday.

According to US Citizenship and Immigration Services (USCIS), the number of Chinese applicants for investment immigration has exceeded applications from any other country or region.

Last year, the USCIS issued 772 EB-5 visas, meant for investor immigrants, to Chinese people. They account for 41 percent of the total EB-5 visas issued by the agency.

"Among all the destinations in terms of investment immigration, the US always outstand all other options as the country does not impose any quota," said Jiao Lingyan, a client executive of the investment immigration department of the Beijing-based GlobeImmi International Education Consultation Co.

"The minimum amount required for investment immigration to the US is $500,000. But it should be noted that this applies to investments in projects recommended by authorities in the US. People considering these projects should take into account that they may not make profits," Jiao said.

"It is worth noting that the minimum amount for investment immigration will be raised in the coming years, because the number of rich people in China is rapidly growing," she said.

Among the 980 people interviewed by Hurun Report and the BOC, one-third said they have assets overseas, which on an average account for 19 percent of their total assets.

While 32 percent of the interviewees said they have invested overseas with a view to immigrate, half of them said they did so mainly for the sake of their children's education.

Zhang Yuehui, a Beijing-based immigration expert, said children's education is also the top concern among those who want to immigrate.

"A growing number of parents in China have realized that children growing up in the examination-oriented education system in China will find it hard to compete in an increasingly globalized world," Zhang said.

Wang Lilan, 38, a mother of two who immigrated to Australia from her home province of Fujian two years ago, was one of those parents.

"My 12-year-old elder daughter used to do her homework very late into the night. But here in Australia, she does quite a lot practical assignment, in a playful way. And she has more spare time to do the things she likes," Wang said.

"I feel very delighted to see my children having fun while studying," Wang said.

Chinese immigrants are also getting younger, with the largest group aged between 25 and 30, compared to the 40-45 age group in the past, Zhang said

http://www.chinadaily.com.cn/business/2011-11/03/content_14028075.htm

Tuesday 16 November 2010

Chinese shares tumble over tightening policy speculation

Chinese shares tumble over tightening policy speculation
(Xinhua)
Updated: 2010-11-16 15:54


BEIJING - Chinese equities slid Tuesday as investors worried prospects of higher interest rates and inflation control policies would hurt companies' earning.

Property developers, metal companies and banking shares fronted the sell-off with the benchmark Shanghai Composite Index down 3.98 percent, or 119.88 points, to close at 2,894.54.

The Shenzhen Component Index fell 4.61 percent, or 590.82 points, to end at 12,217.27.

Combined turnover expanded to 398.13 billion yuan ($59.96 billion) from 355.3 billion yuan the previous trading day.

Losers outnumbered gainers by 774 to 115 in Shanghai and 898 to 191 in Shenzhen.

http://www.chinadaily.com.cn/business/2010-11/16/content_11558056.htm

QE2 may have 'catastrophic consequences' for global economy


By Ren Jie (chinadaily.com.cn)

Updated: 2010-11-12 10:54



QE2 may have 'catastrophic consequences' for global economy

 Cheng Siwei
The US Federal Reserve's recent move to issue $600 billion for restoring a foundering US economy may have catastrophic consequences for the global economy, according to Cheng Siwei, economist and former vice-chairman of the Standing Committee of the National People's Congress.
Cheng made the remarks at "A World Summit: The Ascent of China's Capital Markets" in Beijing on Wednesday.
Emerging-market stocks rose and prices of bulk commodities surged significantly last week following the US Fed's announcement on Nov 3 that it will buy $600 billion in Treasury bonds to boost the US economy, in a move known as "quantitative easing" (QE2), which triggered global debate. Many economists say they believe that the policy's effectiveness is uncertain.
QE2 may have 'catastrophic consequences' for global economyReal estate sector shows signs of cooling
Related readings:QE2 may have 'catastrophic consequences' for global economy QE2 may aggravate global economic imbalance
QE2 may have 'catastrophic consequences' for global economy Unknown consequences of QE2
QE2 may have 'catastrophic consequences' for global economy Fed's QE2, a dangerous and unnecessary step: futures pioneer
QE2 may have 'catastrophic consequences' for global economy QE2 may put huge pressure on emerging economies
Cheng said the US QE2 may trigger inflation in global markets, adding that the move will lead to an inflow of hot money to some countries and put appreciation pressure on the currencies of those countries.
Cheng also said there are many ways for hot money to enter in China, especially since the country's central bank is raising interest rates. He said busting underground banking rings will help the country curb hot money inflows.
Cheng also said he is a "prudential optimist" and is confident in the performance of Chinese stocks in 2011. He admitted that the A-shares are still in a bear market, but said the worst part of it is over. Chinese capital markets will gradually enter in a bull market next year as the nation's economy growth remains stable.


http://www.chinadaily.com.cn/business/2010-11/12/content_11541106.htm

Tuesday 26 October 2010

Top 10 profitable companies in China

Web Exclusive
Top 10 profitable companies in China
(chinadaily.com.cn)
Updated: 2010-03-30 11:26



All but two of China's top 10 most profitable Shanghai- or Shenzhen-listed companies in 2009 are from the energy or financial sector, the Beijing Times reported Tuesday, based on 832 annual financial reports, or more than half of the total that were released by Monday morning.

With a staggering 129.4 billion yuan ($18.95 billion) in after-tax profit, the Industrial and Commercial Bank of China (ICBC), the world's biggest lender by market value, replaced PetroChina Co as the country's most profitable listed company, followed by China Construction Bank with 106.84 billion yuan ($15.65 billion), according to the newspaper citing Wind Info, a financial data provider in China.

PetroChina Co, the country's largest oil and gas producer, came in third with 103.39 billion yuan ($15.14 billion) in net profit last year and Bank of China, the country's third-largest lender by market value, took fourth place with 81.07 billion yuan.


Related full coverage:Top 10 profitable companies in China 2009 Annual Reports of Listed Companies 


Sinopec Corp, Asia's top oil refiner, ranked fifth with 61.76 billion yuan ($9.05 billion), and China Shenhua Energy Co, China's largest coal producer, sixth with 30.28 billion yuan ($4.43 billion).
The other four are Industrial Bank Co (13.3 billion yuan), a mid-sized Chinese lender; China Unicom (9.56 billion yuan), China's No 2 mobile carrier; China Vanke Co (5.33 billion yuan), the country's biggest property developer by market value and Huaneng Power International Co (5.08 billion yuan), China's biggest listed electricity producer.

The total profit of the top 10 companies is 561.14 billion yuan, or 75 percent of the total for the 832 companies combined. The total profit for the 832 companies is 749.55 billion yuan.

Other companies that are likely to make the top 10 list include China Life Insurance Co and China Merchants Bank, which have yet to release their annual reports.

The list excluded Chinese companies that list in Hong Kong, like China Mobile.

http://www.chinadaily.com.cn/business/2010-03/30/content_9661921.htm

Saturday 19 December 2009

Will Bad Money Drive Out Good in Chinese Private Equity?

Will Bad Money Drive Out Good in Chinese Private Equity?
November 30th, 2009


The financial rule first postulated by Sir Thomas Gresham 500 years ago famously holds that “bad money drives out good”. In other words, if two different currencies are circulating together, the “bad” one will be used more frequently. By “bad”, what Gresham meant was a currency of equal face value but lower real value than its competitor. A simple way to understand it: if you had two $100 bills in your wallet, and suspected one is counterfeit and the other genuine, you’d likely try to spend the counterfeit $100 bill first, hoping you can pass it off at its nominal value.

While it’s a bit of a stretch from Sir Thomas’s original precept, it’s possible to see a modified version of Gresham’s Law beginning to emerge in the private equity industry in China. How so? Money from some of “bad” PE investors may drive out money from “good” PE investors. If this happens, it could result in companies growing less strongly, less solidly and, ultimately, having less successful IPOs.

Good money belongs to the PE investors who have the experience, temperament, patience, connections, managerial knowledge and financial techniques to help a company after it receives investment. Bad money, on the other hand, comes from private equity and other investment firms that either cannot or will not do much to help the companies it invests in. Instead, it pushes for the earliest possible IPO.

Good money can be transformational for a company, putting it on a better pathway financially, operationally and strategically. We see it all the time in our work: a good PE investor will usually lift a company’s performance, and help implement long-term improvements. They do it by having operational experience of their own, running companies, and also knowing who to bring in to tighten up things like financial controls and inventory management.

You only need to look at some of China’s most successful private businesses, before and after they received pre-IPO PE finance, to see how effective this “good money” can be. Baidu, Suntech, Focus Media, Belle and a host of the other most successful fully-private companies on the stock market had pre-IPO PE investment. After the PE firms invested, up to the time of IPO, these companies showed significant improvements in operating and financial performance.

The problem the “good money” PEs face in China is that they are being squeezed out by other investors who will invest at higher valuations, more quickly and with less time and money spent on due diligence. All money spends the same, of course. So, from the perspective of many company bosses, these firms offering “bad money” have a lot going for them. They pay more, intrude less, demand little. Sure, they don’t have the experience or inclination to get involved improving a company’s operations. But, many bosses see that also as a plus. They are usually, rightly or wrongly, pretty sure of themselves and the direction they are moving. The “good money” PE firms can be seen as nosy and meddlesome. The “bad money” guys as trusting and fully-supportive.

Every week, new private equity companies are being formed to invest in China – with billions of renminbi in capital from government departments, banks, state-owned companies, rich individuals. “Stampede” isn’t too strong a word. The reason is simple: investing in private Chinese companies, ahead of their eventual IPOs, can be a very good way to make money. It also looks (deceptively) easy: you find a decent company, buy their shares at ten times this year’s earnings, hold for a few years while profits increase, and then sell your shares in an IPO on the Shanghai or Shenzhen stock markets for thirty times earnings.

The management of these firms often have very different backgrounds (and pay structures) than the partners at the global PE firms. Many are former stockbrokers or accountants, have never run companies, nor do they know what to do to turn around an investment that goes wrong. They do know how to ride a favorable wave – and that wave is China’s booming domestic economy, and high profit growth at lots of private Chinese companies.

Having both served on boards and run companies with outside directors and investors, I am a big believer in their importance. Having a smart, experienced, active, hands-on minority investor is often a real boon. In the best cases, the minority investors can more than make up for any value they extract (by driving a hard bargain when buying the shares) by introducing more rigorous financial controls, strategic planning and corporate governance. The best proof of this: private companies with pre-IPO investment from a “good money” PE firm tend to get higher valuations, and better underwriters, at the time of their initial public offering.

But, the precise dollar value of “good money” investment is hard to measure. It’s easy enough for a “bad money” PE firm to claim it’s very knowledgeable about the best way to structure the company ahead of an IPO. So, then it comes back to: who is willing to pay the highest price, act the quickest, do the most perfunctory due diligence and attach the fewest punitive terms (no ratchets or anti-dilution measures) in their investment contracts. In PE in China, bad money drives out the good, because it drives faster and looser.


http://bx.businessweek.com/investment-banking/view?url=http%3A%2F%2Fwww.chinafirstcapital.com%2Fblog%2F%3Fp%3D537

2010 Investment Outlook

2010 Investment Outlook
Advice for next year: Go global
By Peter Coy

December 28, 2009

After a long, hard day of conquering the world, Chinese industrialists toast deals with Scotch whisky. This is an opportunity for London-based Diageo (DEO), the world's largest distiller. In 2007 it introduced Johnnie Walker Blue Label George V Edition at $600 per crystal decanter. Sales in Asia were so strong that Diageo topped itself this year with The John Walker at a suggested retail price of $3,000. It's "performing very well," the company says.

Investors looking ahead to 2010 can learn from Diageo. Figure out where wealth is being produced in the world and grab a piece of it, whether that's in China or Brazil or the U.S. Don't count on a robust economic recovery to lift the stocks of run-of-the-mill companies, because most economists expect a weakish rebound.

We predicted in this space one year ago, when blood was running in the streets, that investors would "do well by buying what's out of favor," such as high-yield bonds. Did they ever: Through November in the global markets, junk bonds returned 58%, followed by commodities (36%), gold (34%), stocks (29%), and investment-grade corporate bonds (23%). Bringing up the rear in returns was the safe choice, government debt (8%). But the easy money from amping up risk is over. Now it's time to choose safer plays in stocks, bonds, and commodities that will thrive even as the U.S. economy continues its struggle to get back to good health.

In that light, going global is a good, sensible theme for 2010. It's one of the few things that passive and active investors can agree on, even though they have opposite reasons. Passive investors believe that you can't beat the market, so they favor a little-bit-of-everything approach to reduce the risk from any one investment going bad. By their philosophy, the maximum diversification comes from spreading your bets all over the globe, not just in your home country. Ideally, the passive investing camp says, Americans' investment in U.S. stocks should be no higher than U.S. stocks' share of global market capitalization. That share has fallen from 70% in 1970 to 48% in 2009, according to MSCI Barra (MXB), which calculates market indexes.

You can even argue that Americans should underweight U.S. stocks to offset their heavy exposure to the U.S. through the homes they own on American soil. Not many Americans are that internationally diversified. A typical 401(k) in the U.S. has about five times as much invested in U.S. stocks as in foreign stocks, according to a survey by Hewitt Associates (HEW).

Active investors are also exploring investments abroad, but not just for diversification. In contrast to index-fund investors, they believe you can beat the market—and many happen to think that some of the best bargains for 2010 lie outside the U.S., in markets that have been less picked over by professionals. An investor who miraculously managed to select the top 10 stocks in the world in each market sector each year for the eight years through December 2008 would have had a cumulative return of almost 7,000%, says MFS Investment Management, the Boston-based fund manager. In contrast, MFS adds, an equally foresighted investor who was restricted to the top-performing stocks in the Standard & Poor's 500-stock index would have had a cumulative return of just under 1,500%. In other words, if you have any faith in your stockpicking, you will want to roam the world for candidates.

Whatever their motivation, many Americans are likely to intensify their search for investments abroad in the coming year. An online investors' survey for Bloomberg BusinessWeek in early December found that 40% of American investors plan to increase their exposure to international stocks over the next five years, up from 22% a year ago.

The survey included 770 Americans as well as 158 international investors who had been recruited to participate in periodic online polls by Bloomberg BusinessWeek Research Services. Some things don't change quickly, though: Asked which stock market would produce the best returns over the next year, Americans were still more likely to pick the U.S. than any other country. Among foreign investors surveyed, the U.S. came in fourth after China, India, and Brazil.

Those non-U.S. investors may be on to something. In comparison with the outlook in the recuperating U.S., prospects for growth are much stronger in Asia and in resource-rich nations such as Brazil, Canada, and Australia, where business confidence recently reached its highest level in seven years. "The U.S. economy, with all due respect, is not such a dominant part of the global economy as it used to be. We're going to have decoupling" of other countries from the U.S. in terms of economic performance, says Oded Shenkar, a professor at Ohio State University's Fisher College of Business. The case for going global is even stronger if you believe that the dollar will sink in 2010. Returns on foreign stocks and bonds are worth more to Americans when the dollar falls against other currencies. The Federal Reserve has vowed to keep short-term interest rates extremely low until the U.S. economy gains strength, which may not be until summer or later. Low U.S. rates put downward pressure on the currency.

Buying multinationals is an easy way to bet on global growth without mucking about in names you've never heard of. Not just any multinational will do, though. Makers of consumer staples that serve the growing markets of Asia and Latin America are a good bet for 2010, says Rajiv Jain, head of international equities for Vontobel Asset Management in New York. Diageo is one, of course. Others include Coca-Cola (KO), Nestlé, McDonald's (MCD), and BAT (BTI) (if owning a tobacco company doesn't bother you). Many of these companies have handsome dividend yields as well as price-earnings multiples that are historically low in comparison with those of growth stocks, Jain says.

If you want even more exposure to growth in the developing world, try a company like Nestlé India—not a multinational, of course—which has had 11 consecutive quarters of strong revenue growth. "If you look at their numbers, you would never know there was a recession," says Jain.

In contrast, this is not the best year to go all-in on an industrial renaissance. There is still massive overcapacity in manufacturing in the U.S. despite plant shutdowns and layoffs. China made its own excess of productive capacity worse when it staved off an economic slump by building plants, equipment, infrastructure, and housing.

The tech sector should do somewhat better than general manufacturing because it enjoys shorter product cycles: If customers have any money at all, they tend to replace their computers and communications gear when the stuff becomes obsolete. Worldwide semiconductor sales rebounded more than 50% from their February 2009 lows through October, notes economist Edward Yardeni of Yardeni Research in Great Neck, N.Y. But tech stocks have risen a lot from their nadirs, so they're no great bargains at current prices.

Banks and other financial companies don't look like good deals, either. They continue to be weighed down by weak loans and investments that were made during the go-go years. And the off-balance-sheet financing they once used to juice up their returns is now pretty much off limits, says Wasif Latif, an equity portfolio manager and a member of the asset allocation team of USAA, the San Antonio-based financial-services firm for the armed forces and veterans. Plus, financial stocks have risen a lot from their priced-for-Armageddon lows.

It's been a crazy year. Somewhere out there is a hapless investor who stayed fully invested all through the crash, then finally capitulated and sold in early March, only to watch from the sidelines in horror as the Standard & Poor's 500 rebounded 65% through mid-December. To make sure that's not you in 2010, think hard about your investment choices so you can have the courage of your convictions. Make an investing plan and stick to it, advises Eileen Rominger, chief investment officer of Goldman Sachs Asset Management (GS) in New York, which oversees about $850 billion of investments. "You need a solid foundation of knowing what you own and why you own it," Rominger says. "In this volatile environment, the temptation for investors to do the wrong thing at exactly the wrong point in time is tremendous."

That's especially good advice if you're venturing for the first time into unfamiliar territory such as foreign stocks and bonds. It's a big world, with lots of opportunities. Don't let the strangeness frighten you away.

Coy is BusinessWeek's Economics editor.



http://www.businessweek.com/magazine/content/09_52/b4161045147139.htm

Friday 6 November 2009

Understanding China: Property Market and Stock Market

Understanding China

China has expanded its economy for the last 20 years.  Its growth over the last 10 years was even more impressive than the first 10 years.

Its present stock market is trading at a PE of 50.  This is not sustainable.

Why is the PE so high? 

Being a relatively new stock market, the 'investors' are not savvy and the price fluctuations are expected to be larger than a mature market.

Another reason is the absence of other assets for the growing affluent Chinese to invest in.  Besides keeping money in the bank, most Chinese invest into the property sectors and the stock markets.  The high prices in these markets are reflecting the disparity in the excess demand over supply.

Properties in China's biggest cities, Shanghai and Peking have doubled in price over the last 5 years.  This rise appears unabated.  Some properties have risen another 2% to 10% over the last few months.  Rental yields can support about 50% of the mortgage repayments in most cases.  The gains in investing into these properties are purely capital gains from property price appreciations.

In Peking, it is not uncommon to find a 3 bedroom flat in a condominium centrally located priced at 5 million yuan.  The average per capital income of the local Peking resident is around 2,000 yuan per month.  How can such prices be supported?  Are these properties affordable?  Is there a disconnect between the prices of properties and the affordability of the people who are going to buy and live in them?  Giving the present limited supply relative to demand, the price can continue to be supported.  This can be explained by the unequal distribution of wealth among the population.  There is a small group enjoying a large percentage of the wealth and this group will continue to invest into the property and the stock market in China.  There is still some time to go to equilibrium.

There are many businesses in China with huge business opportunities tapping the capital market.  The A shares cannot be traded by foreigners.  To participate in the Chinese companies one would need to buy the H shares of these Chinese companies listed in the Hong Kong Stock Exchange (HangSeng).

Tuesday 3 November 2009

New Chinese stock exchange opens with a surge

New Chinese stock exchange opens with a surge
China’s GEM has been likened to a “VIP table on top of a big casino”. — Reuters pic

SHANGHAI, Nov 2 — The highly anticipated opening of China’s new Nasdaq-style stock exchange last Friday is already being seen as a watershed moment for the country’s capital markets, providing new opportunities for Chinese investors and an alternative source of financing for upstart companies.

Investors went on a wild buying spree during the first day of trading Friday on the Growth Enterprise Market, or GEM, sending the shares of some companies soaring as much as 210 per cent.

“This is potentially a major game changer in China’s high-tech industry,” said Yu Zhou, a professor at Vassar College in Poughkeepsie, NY “For about 10 years, the biggest problem for China’s innovative companies was finance. You know it is very hard for them to get loans from state-owned banks.”

The buying was so feverish that regulators, trying to calm the market, temporarily suspended trading in the shares of all 28 newly listed companies at different points on Friday, and analysts warned about the risks posed by excessive speculation and inflated stock prices.

Stocks on the GEM opened sharply lower today, with many shares down 10 per cent.

Still, the first batch of companies listed on the GEM — including film producers, software makers and pharmaceutical companies — raised about US$2 billion (RM6.8 billion) in their initial public offerings, far more than the companies had hoped.

By the end of trading Friday, the combined market value of the newly listed companies was more than US$20 billion, creating fortunes for the founders and investors in those companies.

China is already the world’s biggest market for initial public offerings, and its resurgent economy is flush with capital and investors with a big appetite for risk.

But trading experts have long complained that this country’s market system is seriously flawed, partly because of a misallocation of capital.

State-run banks lend primarily to state-owned companies, which tend to be inefficient. Listings on the Shanghai and Shenzhen stock exchanges are dominated by government enterprises. Young private Chinese companies generally list their shares overseas, in Hong Kong or on the Nasdaq or New York Stock Exchange, because there are few opportunities for stock listings inside the country.

But the government hopes to change that with the creation of the GEM, which is based in the southern boomtown of Shenzhen. The government is seeking to create a more efficient capital market system, one that would steer investment capital to small and midsize private enterprises — companies that can help reshape the economy through technology and innovation, rather than low-price exports.

Although the GEM, which is also known here as ChiNext, is tiny when compared with the Shanghai and Hong Kong stock exchanges, regulators hope it will eventually compete with Nasdaq and entice more Chinese companies to list with GEM.

The GEM is also expected to give a boost to China’s venture capital and private equity markets, which have been hampered by a system that until now has not provided wealthy investors with what industry insiders call an exit strategy, or a way to eventually cash out of their investments in small companies through a domestic stock market.

There are big hurdles to creating a stock exchange similar to Nasdaq, which includes companies like Microsoft, Intel and Google. For instance, volatile stock prices and high valuations could hurt the new bourse’s credibility with entrepreneurs and investors.

Chinese investors are known to speculate, favouring momentum buying and selling rather than the underlying fundamentals of a company, analysts say. Indeed, the casino-like nature of the Shanghai and existing Shenzhen exchanges, combined with government intervention, have added to the volatility of the Chinese markets.

Analysts warn that the GEM could also be prone to similar speculative frenzies.

Andy Xie, an economist who formerly worked at Morgan Stanley, is already calling the GEM a “VIP table on top of a big casino.”

Chang Chun, an expert on financial markets at the China Europe International Business School in Shanghai, said that China needed a market to serve start-ups, but “the issue is the maturity of Chinese investors.”

Before trading opened Friday, he said, regulators created rules to guard against excessive volatility and even warned investors that they would crack down on aggressive speculation. Still, Friday’s opening — with 28 companies beginning to trade at once — was marked by wild price swings.

One cause of concern was the huge valuations of the first batch of stocks listed Friday.

The average GEM-listed company has a price-to-earnings ratio of about 100 — meaning investors are paying about US$100 for every US$1 of 2008 earnings. By comparison, the Standard & Poor’s 500-stock index of big American companies trades at closer to 20 times earnings.

GEM stocks are also priced far above Shanghai stocks, which have long been considered inflated by United States standards.

Still, hundreds of Chinese companies are eagerly awaiting their turn to list on the GEM, and many analysts say the exchange will fill an important need: directing financing toward smaller start-ups that help rebalance economic growth. Zhou at Vassar said she had heard that there were over 1,000 companies in Beijing’s high-tech district alone that met the requirements to list shares on the GEM exchange.

Analysts say many more start-ups will be eager to list after seeing the riches made by the first group of companies to go public on the GEM.

For instance, Wang Zhongjun and his brother Wang Zhonglei are the founders of Beijing-based Huayi Brothers Media, one of the country’s leading film producers. Shares in their company jumped 148 per cent Friday, for a valuation of about US$1.7 billion. — NYT

Tuesday 18 August 2009

A Relevant Tale Of The Mouse, Frog And Hawk

A Relevant Tale Of The Mouse, Frog And Hawk
Jim Oberweis, Oberweis Report 08.06.09, 5:40 PM ET


If fable-teller Aesop sat down with China's President Hu Jintao and Federal Reserve Chairman Ben Bernanke, the meeting would begin with the story of the Mouse, the Frog and the Hawk:

"A mouse who always lived on the land, by an unlucky chance, formed an intimate acquaintance with a frog, who lived, for the most part, in the water. One day, the frog was intent on mischief. He tied the foot of the mouse tightly to his own. Thus joined together, the frog led his friend the mouse to the meadow where they usually searched for food. After this, he gradually led him toward the pond in which he lived. Upon reaching the banks of the water, he suddenly jumped in, dragging the mouse with him.

"The frog enjoyed the water amazingly, and swam croaking about, as if he had done a good deed. The unhappy mouse was soon sputtered and drowned in the water, and his poor dead body floating about on the surface. A hawk observed the floating mouse from the sky, and dove down and grabbed it with his talons, carrying it back to his nest. The frog, being still fastened to the leg of the mouse, was also carried off a prisoner, and was eaten by the hawk."

Ah, but who is the frog and who is the mouse? Is the mouse an allegorical depiction of the U.S., with the death of its manufacturing powerhouse catalyzed by the subsidies and currency manipulation of the Chinese frog? Or is China the mouse, whose export-based economy remains susceptible to the unsustainable and careless spending of the overleveraged western frog? In the latter scenario, the Chinese mouse's life (or at least savings) lay in the hands of the frog, steep in danger, an eventual victim to the hawk of Inflation.

Let us not forget that most unhappy final twist: the frog dies too, bound at the leg to the mouse. And so might the film roll, with an unhappy ending for the American frog. As the U.S. inflates away the burden of its debt (jargonized as "quantitative easing"), we may have fooled the Chinese this time, but future creditors will vanish, and the U.S.' ability to finance deficit spending on absurdly attractive terms will be relinquished for the foreseeable future.

It doesn't take an expert in game theory to realize that the mouse will try to untie itself before it gets dragged under water. In fact, China recently made waves with a proposal for alternatives to the U.S. dollar as a reserve currency. Bernanke, in fulfilling his patriotic cheerleading duties, recently sought to quell inflation worries with a promise to maintain harmony and balance throughout the universe: "I think that they are misguided in the sense that … the Federal Reserve is able to draw those reserves out and raise interest rates at an appropriate time to make sure that we don't have an inflation problem."

Borrowing a line I recently heard from a Harvard-educated economist, "That's bunk!" How popular will it be to raise rates and curtail economic growth just as the economy edges out of the worst recession since the Great Depression? More important, how will he do that as election season approaches and political pressure intensifies?

Besides the potential for intentional deception, one must also consider the chance for unwillful error, or being too late to the punch. In the same way that it is possible that an elephant guided by a troupe of chimpanzees might learn to ride a bicycle, it just isn't particularly likely. The Fed won't get the equilibrium just right. Bernanke has himself suggested it is better to err on the side of inflation rather than deflation, and it is inflation we expect to see, yet significant inflation is not yet imputed into bond prices, likely because the Fed itself is propping up prices for the moment by scooping up bonds to keep yields low. That sounds a bit like the mouse helplessly trying to stay afloat as the hawk lurks overhead.

Inflation is coming. In an inflationary world, stocks outperform bonds and long-term bonds fare particularly badly. Foreign stocks with undervalued currencies outperform stocks denominated in inflating currencies. For these reasons, equities will outpace fixed income for the decade to come (though not so in every year). Chinese equities will continue to offer their outsized gains over the next several years, even after its amazing run thus far in 2009.

That's not to say there won't be plenty of micro-cap stocks in the U.S. that have carved out growth opportunities, but don't ignore the low hanging fruit. Small-cap growth stocks in China--companies like Asia Info Holdings (ASIA), E-House (EJ), Baidu.com, Ctrip (CTRP), American Dairy (ADP), Perfect World (PFWD) and Rino (RINO)--as well as diversified China mutual funds, offer the benefits of foreign currency exposure and higher Chinese GDP growth to your aggressive growth portfolio.

So what's the moral of the story of The Mouse, the Frog and the Hawk? Be the hawk.

Jim Oberweis, CFA, is editor of the Oberweis Report and manager of several mutual funds focused on small-cap growth stocks and China.



http://www.forbes.com/2009/08/06/baidu-ctrip-asiainfo-personal-finance-investing-ideas-inflation-china_print.html

Tuesday 4 August 2009

'China is the biggest thing to happen in the world economy for a century'


'China is the biggest thing to happen in the world economy for a century'
Fundamentalist view: our regular series in which a leading fund manager or expert at making money grow explains why savers and investors should see things their way

By Tom Ewing
Published: 12:00PM BST 03 Aug 2009

Comments 5 Comment on this article


Old and new: to ensure the Chinese economy was not engulfed by the global malaise, the government injected huge sums into public spending projects Photo: GETTY Fund managers often talk about the "themes" that excite them and how they work those ideas into their investments. China is full of exciting opportunities but I would not call it a theme. It is much bigger than that; it is the most important thing going on in the world this decade and the next.

You might find it surprising that the manager of a UK equity growth fund is as interested in China as the state of British banks and whether M&S will increase its dividend. But what is happening in China is as important to your investments as what happens here. Not to have a view on it in your portfolio would be a huge mistake.


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China is a long way away; culturally and geographically. As a result, some investors here often dismiss China as something happening to someone else. Their scepticism about the scale of activity means they enjoy belittling this emerging economic superpower. The fact is, without China propping it up, the global economy would be in a worse state than it currently is. It matters to us all whether or not Chinese growth is sustainable.

I have visited China several times in the past few years and my trip in June demonstrated once more China's glorious ability to astound; even after the financial crisis.

The main shopping street of any one of a hundred large Chinese cities at 10pm on a Tuesday is virtually indistinguishable from Oxford Street on a busy Saturday afternoon – perhaps with more neon!

China is a reason to be optimistic about the outlook for world growth. Government finances are healthy and consumers are spending as confidence returns. Chinese people, unlike us, are not encumbered by a decade of over-borrowing. Things may be bad in the West, but it's not often that a billion people go through an industrial revolution. In fact, it's never happened before.

To ensure the Chinese economy was not engulfed by the global malaise, the Chinese government injected huge sums of money into public spending projects. Apart from being the catalyst for a stock market recovery last autumn, you can see its impact everywhere. For example, China Railways has been adding track to the network at about 1,000 kilometres a year. This will rise to 10,000 kilometres per year by 2012. To put that into context, the whole UK network is just 16,000 kilometres.

There are critics of this ''overdevelopment''. You can drive along empty eight-lane motorways and wander shopping malls with more staff than customers. Countless suburbs are being developed and redeveloped to provide larger flats and to accommodate the 400 million people moving from rural to urban areas.

I visited Shenyang in north-east China, a city you might not have heard of despite having a population similar to that of Greater London. In just one corner of this one city, there is a construction site of two housing developments with a combined floorspace similar to the whole of London's Docklands.

Rather than see this as a bubble waiting to burst, I see the longer-term opportunity. Properties in Shenyang are selling faster this year than last. Before long the aspirational emergent middle class of China's mushrooming cities will be able to afford cars to fill the roads and to shop in the malls. Urbanisation begets economic growth.

In a broad sense, Chinese growth is affecting asset prices, demand and supply in almost every global industry. More specifically, despite their ingenuity, capital and human resource, the Chinese still look to British companies for certain goods and services.

British technology and engineering is in demand. Longer term, local competition will catch up. Therefore, investors' challenge is to find companies with whom the Chinese will never be able to compete. London's mining sector is an obvious beneficiary of China's lack of natural resources. Less obvious strong positions are those held by Western brands. Diageo, maker of Johnnie Walker, and fashion label Burberry, enjoy premium status among Chinese consumers. It is their very ''un-Chinese-ness'' that creates opportunity.

I am realistic. Rampant growth creates imbalances. This is a long-term story and not without risk. So be careful not to become overexposed and ensure your investments are balanced against many other themes and ideas. However, I am consistently surprised by the failure of many people to appreciate and take advantage of China being the biggest thing to happen in the world economy for a century.

Tom Ewing is portfolio manager at Fidelity UK Growth Fund

http://www.telegraph.co.uk/finance/personalfinance/investing/5964847/China-is-the-biggest-thing-to-happen-in-the-world-economy-for-a-century.html

Saturday 1 August 2009

Speculative frenzy grips China

Speculative frenzy grips China
SHANGHAI, Aug 1 – Just a week ago, Candy Xie, 24, was all ready to make a quick buck on China’s roaring stock market.

The waitress had poured her entire savings of 7,000 yuan (S$1,480) into the shares of two companies that had just gone public.

She said she was a firm believer in the folk mantra xin gu bu bai, or “new stocks never fail”, which appears to have beguiled China’s legion of opportunistic retail investors recently.

“Everyone says they are buying new shares so I’m sure I’ll make money speculating on them,” she said on Monday when one of her punts, Sichuan Expressway Company, made a sizzling debut on the Shanghai bourse.

That day alone, the stock shot up by more than four times from its initial public offering (IPO) price of 3.6 yuan. Feverish trading was suspended twice.

The company’s share price fell back to earth the next day.

Although Xie made a small profit after selling off her Sichuan Expressway shares on Thursday, she admits she is now less sure of making money by punting on the roller-coaster Shanghai stock market.

She is but one of the millions of investors putting their hopes in China’s resurgent stock market. It has shot up by some 90 per cent this year, based on the benchmark Shanghai Composite Index, and recently overtook Japan as the world’s second largest behind the United States.

More than a million Chinese have opened new trading accounts in the two weeks leading up to July 24 – an 18-month high – after Beijing lifted a 10-month ban on new listings in June.

They are betting on a bull run driven partly by funds suspected to have leaked from loans meant for China’s 4 trillion yuan stimulus package.

Most of them are looking to capitalise on a fresh crop of IPOs featuring start-ups and tech firms that will be floated on the upcoming ChiNext exchange in Shenzhen, said Zhejiang University commerce professor Li Jiming.

Of these new investors, a large number appear to be “relatively young newbies with low incomes”, said a manager surnamed Li at a brokerage in Beijing’s Dongcheng district.

A large number of these stock market neophytes are from the “post-1980” generation of Chinese aged 29 and younger, according to a report on Xiamen news portal xmfish.com.

It cited a Wang Wei, 18, who opened an account on Monday at the encouragement of his colleagues. He was quoted as saying: “I don’t have much savings, I’ll just invest 10,000 yuan or so first. The market is rising every day, so the pickings should be not bad.”

Even those who had been burnt last year, when the stock market bubble burst amid concerns of overvalued stocks, are venturing back into the market.

Pharmacist Feng Xia, 33, said she did not dare to touch any stocks for a year after the crash. But in May, when the stock market started to gain momentum again, she could not resist the temptation and invested 2,000 yuan into a metal company’s stock at the recommendation of a friend. She made 700 yuan.

Said another returnee, gym trainer Liu Gang, 25: “I lost a lot of money during the last crash. But this time, I have a gut feeling the boom will last for a few months, so I’m going to going to invest all my savings in stocks.”

Alarmingly, about 52 per cent of small investors who snapped up the Sichuan Expressway stock on its debut said they suffered paper losses – to the tune of 30 million yuan, Beijing Youth Daily reported on Thursday.

On Wednesday, a massive sell-off had set in with the Shanghai Exchange plunging 5 per cent on concerns that shares were overpriced and banks may cap their lending targets.

The market posted a strong recovery over the next two days. This followed an affirmation by China’s central bank to follow a “moderately loose” monetary policy to support the nation’s economic recovery, which suggested that it will not rein in lending in the near future.

Banks have unleashed a staggering 7.4 trillion yuan in new loans in the first six months of this year, as part of the government’s stimulus measures.

But about 20 per cent of the loans has reportedly gone into the stock market.

Analysts said that one big red flag of a bubble forming in China’s stock market was the huge turnover on the debut day of trade for China Construction Engineering Corp on Wednesday.

The builder of the “Water Cube” Olympic aquatics centre said its IPO was more than 35 times oversubscribed.

Even those lucky enough to be allotted shares – like Sheng Tao, 45, who applied for about 70,000 shares but got only 2,000 – was in no mood to hold on to the stock as speculative fever escalated.

When asked why he wanted to sell his shares as quickly as possible, the vice-manager of a textile company in Beijing declared: “Now is the time for speculation. I just want to make money and get out quickly.”

Beijing is already starting to pay attention to the retail investors’ frenzy.

State broadcaster China Central Television and People’s Daily, a Communist Party newspaper, have warned about the perils of speculation this week. The country’s bank regulator has also urged commercial banks to ensure loans are not misused.

However, some people argue that such concerns may be premature.

Professor Li noted that with the Chinese economy expected to perform well later this year, a sharp rise in the stock prices of companies with stable performance should not be viewed as a bubble.

“Right now, there is a bubble in certain stocks only, but not for the entire market,” he argued. – ST

Monday 30 March 2009

Buy China, emerging markets over 2 years, Marc Faber says

Buy China, emerging markets over 2 years, Marc Faber says
Monday, 16 March 2009 13:56

CHINA AND OTHER emerging markets offer value over the next two years as growth picks up, investor Marc Faber said.

Investors should buy stocks and other assets in China after the market falls to its 2008 low to profit from an expected recovery, Faber said in an interview with Bloomberg Television. China is the world’s best-performing stock market this year.

“Rapidly growing countries have setbacks from time to time,” Faber, the publisher of the Gloom, Boom & Doom report, said in Hong Kong. “I think we’re going to test the lows again, but over the next two years, it’s probably a good time to invest.”

The MSCI World Index has retreated 18% this year, extending last year’s record 42% slump, amid concern the widening financial crisis and global recession will sap corporate profits. The Shanghai Composite Index, which tracks the larger of China’s two mainland exchanges, has gained 16% in 2009.

China is betting that a 4 trillion yuan ($900 billion) stimulus package and interest-rate cuts will help it reach its 8% growth target this year. The global economy is expected to expand at a 0.5% expansion, according to the International Monetary Fund.

Industrial and precious metals are attractive investments after the Reuters/Jefferies CRB Index of 19 commodities “collapsed,” Faber added. The CRB Index has dropped 8% this year, adding to the 36% retreat in 2008.

“Asset markets have already discounted a lot of the bad economic news,” he said. “ Some assets like commodities are very, very inexpensive.”

Faber had advised buying gold at the start of its eight-year rally, when it traded for less than US$300 an ounce. The metal topped US$1,000 last year and traded at US$932.78 an ounce today. He also told investors to bail out of US stocks a week before the so-called Black Monday crash in 1987, according to his website.

He continues to favour gold, which has gained 19% in the past six months because currencies including the US dollar are “not desirable”.

Stock markets are “not particularly expensive” and investors should consider buying them in anticipation of a recovery, Faber advised. The MSCI global index is valued at 11 times reported earnings, half its 10-year average multiple of 22.

“We also have a lot of equities that are not particularly expensive because they’ve collapsed,” Faber said. “These are relatively sound companies and whenever the recovery will come, they will be in a strong position.”



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Buy China, emerging markets over 2 years, Marc Faber says
Monday, 16 March 2009 © 2009 - The Edge Singapore


Last Updated on Thursday, 19 March 2009 13:01
http://www.theedgesingapore.com/blogsheads/1017-the-edge-2009/3009-buy-china-emerging-markets-over-2-years-marc-faber-says.html

Tuesday 24 March 2009

The Dragon is blowing commodity bubbles

From Times Online
January 7, 2009

The Dragon is blowing commodity bubbles: Leo Lewis on Asia

Bullish little oddities have been surfacing across Asia, and in the background are the hunger pangs of the Dragon Leo Lewis, Asia Business Correspondent

Yesterday, after three consecutive sessions of hot-blooded, limit-hitting exuberance, trading in Shanghai rubber futures was suspended and given the chance to simmer down. Dealers simply shrugged and made a feverish lunge for Tokyo rubber futures instead.

It was not supposed to be like this. Everyone has seen the doom-laden pictures by now - the trade fleets at anchor, the silent pit-heads and the stone-cold blast furnaces – but risk capital seems to have spotted something more enticing: six vast holes in the ground and the contents of a Chinese fridge.

Accordingly, dozens of other bullish little oddities have begun surfacing in what were supposed to be dread-infested markets. In Seoul, shares in the country’s two largest fisheries lurched around 8 per cent higher yesterday, because a woman died of bird flu in Beijing and a panicky cull of poultry may be in the offing.

In Kuala Lumpur, plantation owners are celebrating a flying start to the New Year after the prospect of widespread frying drove an extended rally in palm oil. South American soy bean farmers are expecting weekly orders to double from normal levels. Energy traders in Singapore are beginning to mutter quietly about a solid floor on crude oil prices.

Related Links
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Playing in the background to all of this is a seductive, hypnotising ode: The hunger pangs of the Dragon.

As tunes go, this is a siren-call with monstrously good form. Few bubble-inflating puffs of broker-patter have moved so many markets by so much and in such a short space of time as the great “China eats the world” theory. Three years ago, when this argument was in its most impressive stage of ascendancy, it could be attached to nearly every call. Given all the capital which, at the time, needed somewhere to go, the line was guaranteed an attentive audience. The following sentence could be adapted for purpose: “Quake with fear, because the Chinese are drinking/eating/building/burning/stir-frying/smelting ever more copper/concrete/indium/phosphorus/condominiums/steel/pork/milk/corn – and will continue to do so for five years/a decade/fifty years/until the world runs out completely.”

Endless charts could be produced showing Chinese hard and soft commodity consumption doubling over the previous decade and China’s relative proportion of total global consumption soaring with it. Beijing itself was talking with bullet-proof confidence about the millions of people it had lifted from poverty, and it was hard not to be convinced that the charts would simply continue northwards.

That view took a bit of a breather as the global economy drooped, but now, far, far sooner than expected, the “China eats the world” theory has returned to markets and begun playing its old mind tricks once again.

There is a subtle difference this time, though: in a year where nothing can be reasonably expected to boom the appetite argument rests on the sense that Beijing is exploiting both its relatively low debt position and the immense recent plunges in commodity prices to cheaply stockpile resources for the future – a move that analysts agree makes eminent good sense both for China, and for any big companies out there with enough cash to take similar advantage from the situation. For a nation that has pinned its hopes for economic stimulus on multi-billion dollar infrastructure projects, the state has a clear interest in securing the raw materials at their current knock-down prices. The Chinese leadership has also made little secret of its concerns about preserving social stability as the mighty manufacturing growth engine sputters. If the opportunity is there, state purchases of grains, metals, energy and anything else with inherent price volatility are a natural buffer for a state to establish against future public unrest.

To help things along, China’s actual intentions remain tantalisingly vague. Energy analysts in London believe that China is currently looking to fill six newly-built strategic petroleum reserves dotted around the country with a view to securing a stockpile of some 250 million barrels of crude. Agricultural commodity traders believe that the state is looking to replenish its grain and soybean reserves – depleted after years of draw-down, while metal traders have heard that China is planning secure stocks of a variety of minerals from aluminium and copper to nickel and zinc.

Unfortunately, all the recent price spikes based on this have the clammy feel of a sucker’s rally. Compared with its former gluttony, the Dragon is scarcely more than peckish: look behind the China voracity theory this time, and it is riddled with flaws. Those crude oil storage facilities may indeed be deep and empty, but even if you assume that the job of filling them adds 100,000 barrels to overall daily Chinese imports of 8 million barrels, the practical impact on global demand is negligible. It is certainly no counterweight to a global plunge in demand measured in the tens of millions of barrels.

Similarly with metals, no amount of state buying – even in the form of offering liquidity to local smelters – is going to compensate for the sort of drop-off in industrial production and manufacturing experienced over the last couple of months. Even the promise of massive infrastructure projects implied by Beijing’s $580 billion stimulus package will affect only about 16 per cent of the economy, and a state think tank said yesterday that the country’s fixed-asset investment would decelerate in 2009 despite all those new spending plans.

Even the more literal image of China eating the world may fade for at least another year or two until the factories start whirring again. The prices of edible oils and other foods are now performing strongly ahead of the Lunar New Year holidays, but it takes a considerable leap of faith to imagine that Chinese demand for meat, dairy products and cooking oils will be back at global larder-sapping levels come mid-February.


http://business.timesonline.co.uk/tol/business/markets/article5467895.ece

Thursday 19 March 2009

Buy China, emerging markets over 2 years, Marc Faber says

Buy China, emerging markets over 2 years, Marc Faber says
Monday, 16 March 2009 13:56


China and other emerging markets offer value over the next two years as growth picks up, investor Marc Faber said.

Investors should buy stocks and other assets in China after the market falls to its 2008 low to profit from an expected recovery, Faber said in an interview with Bloomberg Television. China is the world’s best-performing stock market this year.

“Rapidly growing countries have setbacks from time to time,” Faber, the publisher of the Gloom, Boom & Doom report, said in Hong Kong. “I think we’re going to test the lows again, but over the next two years, it’s probably a good time to invest.”

The MSCI World Index has retreated 18% this year, extending last year’s record 42% slump, amid concern the widening financial crisis and global recession will sap corporate profits. The Shanghai Composite Index, which tracks the larger of China’s two mainland exchanges, has gained 16% in 2009.

China is betting that a 4 trillion yuan ($900 billion) stimulus package and interest-rate cuts will help it reach its 8% growth target this year. The global economy is expected to expand at a 0.5% expansion, according to the International Monetary Fund.

Industrial and precious metals are attractive investments after the Reuters/Jefferies CRB Index of 19 commodities “collapsed,” Faber added. The CRB Index has dropped 8% this year, adding to the 36% retreat in 2008.

“Asset markets have already discounted a lot of the bad economic news,” he said. “ Some assets like commodities are very, very inexpensive.”

Faber had advised buying gold at the start of its eight-year rally, when it traded for less than US$300 an ounce. The metal topped US$1,000 last year and traded at US$932.78 an ounce today. He also told investors to bail out of US stocks a week before the so-called Black Monday crash in 1987, according to his website.

He continues to favour gold, which has gained 19% in the past six months because currencies including the US dollar are “not desirable”.

Stock markets are “not particularly expensive” and investors should consider buying them in anticipation of a recovery, Faber advised. The MSCI global index is valued at 11 times reported earnings, half its 10-year average multiple of 22.

“We also have a lot of equities that are not particularly expensive because they’ve collapsed,” Faber said. “These are relatively sound companies and whenever the recovery will come, they will be in a strong position.”



Monday, 16 March 2009 © 2009 - The Edge Singapore


Last Updated on Tuesday, 17 March 2009 11:53

http://www.theedgesingapore.com/blogsheads/1017-the-edge-2009/3009-buy-china-emerging-markets-over-2-years-marc-faber-says.html

Tuesday 3 March 2009

China built enormous stake in US equities just before crash

China built enormous stake in US equities just before crash
The Chinese government more than tripled its investments in the US stock market to $99.5bn (£70 bn) just months before the financial crisis, it has emerged.

By Malcolm Moore in Shanghai
Last Updated: 3:06PM GMT 02 Mar 2009

The People's Bank of China in Beijing. The shift into riskier investments was the result of a power-struggle between the central bank and the Ministry of Finance.


Provisional figures from the US Treasury department showed that Beijing was holding $99.5bn of shares in June 2008, up from $29bn in 2007. Two years ago, China only held $4bn in US equities, preferring to concentrate on Treasury bills.

However, economists said the latest figures suggested that China may have bought as much as $150bn of equities worldwide, or 7pc of its vast foreign exchange reserves.

Brad Setser, an economist with the Council on Foreign Relations, a US think tank, said the State Administration of Foreign Exchange (SAFE), a branch of the Chinese central bank charged with looking after the foreign reserves, was responsible for the buying spree.

Last year, a Sunday Telegraph investigation revealed that SAFE had built holdings of £9bn in companies listed in London. The new figures suggest that SAFE has now become one of the largest sovereign wealth funds in the world, although it is likely to have been badly burned by falling markets during the financial crisis.

The shift into riskier investments was the result of a power-struggle between China’s central bank and the Ministry of Finance, both of which wanted to show they were capable of managing China’s huge wealth.

The Ministry of Finance runs the $200bn China Investment Corporation (CIC), the country’s official sovereign wealth fund, but has been heavily criticised for taking loss-making stakes in Blackstone and Morgan Stanley.

Mr Setser estimates that only $8bn of the $99.5bn of US equities were bought by CIC, with the rest being purchased by SAFE. “SAFE wanted to show that it could manage a portfolio of 'risk’ assets,” he said, in order to make sure that more of its funds were not passed over to CIC.

However, an official from the China Banking Regulatory Committee said that SAFE had little idea of how to make overseas investments, and lacks a proper team of analysts and stock-pickers.

The head of SAFE, Hu Xiaolian, is one of the few women at the top of a major Chinese government department. However, she has little commercial experience, having spent her entire career at the central bank and graduated from the bank’s own university.

Nevertheless, Arthur Kroeber, an economist at Dragonomics in Beijing, said China is likely to continue buying equities despite the slumping markets.

“They would have seen a considerable erosion in value by now, but I think they are absolutely playing a long game. Fundamentally, what choice do they have? What short game is there that is making money these days?” he said.

“SAFE is saying: the market may be problematic, but if we buy now for the long-term, we’ll probably finish up.” He added that the Chinese public was relatively content with the management of the country’s wealth, since SAFE does not disclose any information about its buying activities.

“As long as they don’t build a big stake in a high-profile company that blows up, they will be ok,” he said, adding that he thought it was possible for the central bank to put as much as 10pc of its foreign reserve holdings into equities. “I would be surprised, however, if they were authorised to put more than 10pc into shares,” he said.


http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4927567/China-built-enormous-stake-in-US-equities-just-before-crash.html

Thursday 19 February 2009

Global investors see Chinese green shoots


Global investors see Chinese green shoots
The world's fund managers have begun to glimpse the first green shoots of recovery and are betting that a powerful rebound in China will revive demand for commodities and lead global industry out of slump.

By Ambrose Evans-Pritchard
Last Updated: 8:46PM GMT 18 Feb 2009

Investors are betting on some green shoots of recovery in China
The latest Merrill Lynch survey of investors shows the highest level of optimism since the credit crunch began, fuelled by tentative hopes that the global cycle is slowly starting to turn.

Michael Hartnett, emerging market strategist at Bank of America Securities-Merrill Lynch, said fund managers had jumped on early signs that China is through the worst.

"China is the one place where policy seems to be working. Credit and the money supply are both growing, and the local equity markets are going through the roof," he said. "There is a feeling they may just be able to pull a rabbit out of the hat."

However, he added: "We think China is a very narrow base for optimism."

The OECD's leading indicators still point down, raising the risk of fresh disappointments for the over-eager. Merrill said oil and industrial commodities are coming back into favour as "a pure way" of playing China's growth without having pick through company balance sheets. But there is a rising suspicion that gold has risen too far, too fast.

Once again, Europe is viewed as the world's "sick man", with a net 70pc of investors expecting the economy to get worse over the next year. The number overweight in cash has risen to 53pc, the highest since the dotcom bust in 2001.

But things may be looking up for Britain.

Gary Baker, head of the region's equity strategy, said sterling's slide is a tonic for stocks listed in London. "A lot of sterling assets are in energy, materials and metal-bashing. These are starting to look very attractive," he said.

Monday 8 December 2008

Advice on China investment: Follow the government

CRAIG STEPHEN'S THIS WEEK IN CHINA

Advice on China investment: Follow the government
Commentary: Talk of yuan convertibility illustrates why official statements and media may be key for making money
By Craig Stephen

Last update: 4:10 p.m. EST Nov. 23, 2008
Comments: 11

HONG KONG (MarketWatch) -- If you want to invest in China, do not try to pick winners among businesses. Instead, follow government policy.

That was the advice given by one seasoned China private equity investor speaking last week at Hong Kong's annual Venture Capital Forum held at Cyberport. To be honest, I had expected some secret investment recipe from these sage professionals, who invest early for the longer term.

There was more: Read the Peoples Daily carefully, as it often front-runs government policy to gauge opinion.

This advice might seem disarmingly straightforward, but it makes a lot of sense. Let the government anoint the winners and jump along for the ride, be it China Mobile (CHL:
china mobile limited) or Alibaba (ALBCF: alibaba com limited) (HK:1688: news, chart, profile) .

For the future, a couple of sectors at the Forum were highlighted as getting special attention from Beijing, namely health care and clean tech.

Some brokers agree that following the government is a sensible investment strategy. MainFirst, in a new report, says earnings visibility is scarce and the simplest path is to see which sectors benefit from the Chinese government's monetary and fiscal stimulus.

This looks like a timely updates of the "buy what China is buying" strategy. After all, in these cash strapped times it seems only governments have money to spend.

Another way to follow this advice is to watch the mainland Chinese government's external policy. China looks set to assumes a bigger role on the world financial stage, possibly sooner rather than later. Increasingly Beijing is debating policy options as it surveys the damaged financial landscape in the post sub-prime era.

Last week the sacred cow of the yuan currency and its lack of convertibility appeared to leap back on to the policy agenda after being run in the press.

A former deputy governor of the central bank called for China to accelerate moves towards convertibility of the yuan. Wu Xiaoling, now a deputy director with the finance and economic committee of the National People's Congress, said China must move soon.

China's currency today has a crawling peg to the U.S. dollar but is still not fully convertible. It may be bought and sold for purposes of trade and investment, but it's not convertible for purely financial transactions.

This arrangement had been credited with shielding China from the worst of the financial crisis. But as times change, it might also be time for a policy rethink.

The main arguments against change are fears of capital flight, unpredictable moves in the exchange rate, and preserving the value of China's U.S. dollar reserves.

As China recently surpassed Japan as the biggest holder of U.S. government securities, it could be timely to question the wisdom of adding to its mountain of dollar reserves, especially with U.S. authorities looking set to print more greenbacks as more businesses demand a bail out.
Wu was reported to say China's foreign reserve and commercial banks hold US$370 billion of Freddie Mac and Fannie Mae bonds, but that should not stop change -- China could afford to lose that.

Worries convertibility could spark capital fleeing China's shaky institutions should be less of an issue today: They surely stack up a lot stronger against their beaten-down overseas counterparts.

Against that, the benefits of having a fully convertible currency have to be considered. It should be easier to trade in yuan, with contracts in yuan removing a lot of exchange risk. There is also potential to boost growth in China's banks and financial institutions as they diversify.

Not only could China seek to have more diversified foreign reserves, it could also benefit when other countries' central banks hold yuan reserves -- something Thailand recently proposed.
Other media reports suggest China is considering adding more gold to its reserves. Gold is well off its dollar-denominated highs, but it has recently held up pretty well as a store of value in euros and many other currencies.

If China does move, or if it begins the process, it will have major implications for reserve currency weightings, as well as potentially for the Hong Kong dollar, and will lead to increased capital flows.

Of course, the proposal may be merely testing opinion, but it is something to keep an eye on.
Meanwhile, in Hong Kong as the economy continues to decline, some analysts suggest that, here too, government intervention is possible. RBS said in a new research note that the government could intervene to shore up the property market if price falls accelerate, warning of a return of asset deflation.

Hong Kong Chief Executive Donald Tsang recently held a fireside chat with British Prime Minister Gordon Brown, so maybe RBS has a fast track on information. The U.K. government will shortly become the largest shareholder in RBS, in the new world of state-owned investment/commercial banks.

It seems everywhere, we will have to get used to more government intervention in the economy.

And as the balance of power shifts on the global stage, being prepared for Beijing's next moves is going to be increasingly important


http://www.marketwatch.com/news/story/china-investors-its-all-about/story.aspx?guid=%7BC6C3074C%2D7F00%2D40DB%2D8F55%2D6E5303B13CDC%7D&dist=morenews