Category: Shanghai Composite

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Beijing Olympics Shanghai Composite

China: embracing bear market after Olympics?

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Couple days ago I suggested the China stock market could have a relief rally after Olympics, when the party is over without major glitches. I still belive Beijing Olympics will turn out to be ok, amid so much worries from human rights protests to security threats. I also believe Chinese economy will not stand still after the Olympics.

But I change my view on Chinese stocks today, after the Chinese ADRs dropped big in the US: from FXI (NYSE: FXI), to CHL (NYSE: CHL), to Sohu (Nasdaq: SOHU), all dropped around 5% or more today, less than 14 hours before the opening ceremony (which will begin Beijing time 8:08 PM, Aug.8 ). The problem is not only the expected slow down of Chinese economy, but also due to most Chinese stocks (from Shanghai, to Honghong, to NewYork) are over valued. Now they will get a reality check. Give an example, ICBC (1398.HK, 601398.SS), traded at 3 times book value, according to JRJ. That’s much higher than the US counter part such as BoA (NYSE: BAC), Wells Fargo (NYSE: WFC). Algthough we know US banks are in trouble lately because of subprime/credit crisis, ICBC can not justify its 3 times PB ratio if its growth slows down (which is possible).

So hold some cash, hold your breath, and I expect we are having a rough ride in the near future 🙂

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Investing Shanghai Composite

Bottom fishing time?

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Yesterday was another brutal day in the Wall Street, or the Bay Street (Toronto), or SSE (Shanghai Securities Exchange). According to the number, the Dow is now officially in bear territory. General Motor (NYSE:GM), a Dow component and an American icon, hit 53 years low. It closed at $11.43. So, should we go bottom fishing?

I am not a market timer, nor do I like to predict the market trend. But I noticed another interesting article from my friend Wang Jianshuo’s blog: Stock Market Big Drop. Note Jianshuo is not into stock market, a rare type in Shanghai. In other words, when people like Jianshuo started to pay attention to the market, things are either really good or bad (noteworthy). So, the 1 million dollar question: should we go bottom fishing? My answer is be careful, because if we don’t we will catch some falling knives instead 🙁

Some ideas for bottom fishing

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Shanghai Composite

Reasons behind big drop in China market

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Fundamentals
The common census is China economy growth will slow down significantly, due to the slow down from export (trouble in US economy); rising inflation (food, oil etc.)

The rights of minority shareholders are also not protected as well as mature market, because in some cases the management cooked up the accounting books, and get away from it.

The flaws in market itself
Recent arrest of former vice head of China securities regulatory commission (Wang Yi): people fear this is not an isolated event, and bigger fish will be caught as this thing unravels. Insider trading was rampant and still is prevalent in China. Insider trading reduces the confidence of long term investors, people just want to make quick money and run.

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Shanghai Composite

Shanghai melt down again

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It was not too long ago (April 18 to be exact) Shanghai Composite Index hit a low of this year. Shortly after that Chinese goverment issued new policies trying to stablize the market. Well, it looks like we need the goverment do something about the market again: on June 10 the Shanghai composite dropped 257 points (7.73%), and closed at a new low of 3072. More than 1000 stocks dropped 10% in Shanghai and Shenzhen markets (see below).

Shanghai composite index June 10 2008
(source: finance.cn.yahoo.com; full size picture here)

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Investing Shanghai Composite

Danbin on TV

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Dan Bin (但斌, blog) is the founder, CEO of Shenzhen based Eastern Bay Asset Management Co. He admires Buffett and is value minded, although I don’t agree with everything he says “such as buy China Ping’an blindly” (remembers me of Cramer). He was on Shanghai First CaiJing TV interview recently. The interview is in Chinese lasts about an hour, and the videos are in 2 parts.

Interview part 1:

财富人生：东方港湾资产管理 但斌_上(Use this link if embed player does not work)

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Shanghai Composite

Pork producers in China

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I did a little reading on China pork industry lately. I found 3 pork producers listed in Shenzhen, Hongkong and the US. There are Henan Shuanghui (000895 Chinese, English), Nanjing Yurun (1068.HK), and Henan Zhongpin (Nasdaq: HOGS).
I believe they are three major pork producers, and the sales of pork are also in this order (descending): Shuanghui, Yurun, Zhongpin. I remember I ate many Shuanghui sausages while in college. I also determined that was junk food (not much real good meat) recently.

Interestingly, as of Friday May 23, the PE (price earning, ttm) ratio of those three are also in this order: 44 for Shuanghui (000895.SZ), 22 for Yurun (1068.HK), and 13.4 for Zhongpin (HOGS, Yahoo Finance). Assume the companies has similar profit margin and financial leverage, the different PEs shows how different market values the similar business (pork/food) in mainland, Hongkong and the US.

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Shanghai Composite

ICBC: benifit from Chinese economy?

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Last week, an American friends asked me about the booming Chinese eocnomy and how to benifit from it. There are many Chinese ADRs in listed in the US market these days, but I don’t think they are suitable for most individual investors (they are for the bolder speculators only 🙂

ICBC deposite book

Why ICBC
ICBC, Industrial and Commercial Bank of China, 中国工商银行 or 工行 (Chinese like abbreviation too). I am using Buffett’s rules of thumb to analyze ICBC. The rules are: business is understandble, business has a moat, sound management and attractive price.

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Shanghai Composite

Two policies to stablize China market

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(Update Apr 24) The trading tax bullet worked, at least for a day. The Shanghai composite index went up 305 points, or 9.29%. Similar performance from Shenzhen. All but two stocks in the two markets went up, many went up 10% (the limit). See the below picture for more details.

SHA_COMP_042408
(The thumbnail above is clickable, for faster download, click here for a full size picture)

(Original) The Chinese goverment (regulatories) has listened, and now they are pulling the trigger. Here are the two new policies:

On April 20 Sunday evening, they unveil the new lockup share transaction rules. Basically they are saying any large block of shares (larger than 1% of overall shares) has to go through a special trading platform, to avoid the large supply of unlocked shares. Reasonable move. But I heard people already abused the system. Guess what? They sell 0.99% instead of 1% (Chinese news from Sina). This is one thing I don’t like some of my countrymen: they cut corners and bend the rules. One reason Chinese have not made good quality cars like the Japanese do?

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Shanghai Composite

Shanghai Composite 52 week low

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Shanghai composite index closed new 52 week low today, at 3094.67 (down 12% compared to a year ago).

Shanghai composite index pic
(full size pic here, powered by Google Finance)

But I don’t think too much of it, other than the valuation of China A share market is more attractive now. The composite index itself is screwed up because PetroChina A share (601857) has more than 20% of weight, much bigger than its floating shares weight. In case you did not pay attention to PetroChina (NYSE:PTR, 0857.HK), 601857 was CNY 43.96 on Nov. 06, 2007, and closed CNY 16.02 as of today Apr. 18, 2008. That’s a whopping 63.56% drop!

My simply valuation tool for A shares
A more reliable indicator for A share valuation, a tool I found useful, is this AH spread sheet. As one can see from this spead sheet, some Chinese banks’ A share (include ICBC, 601398) is very attractive now. That is, assume the H share is fairly priced. One caveat of this approach, is we can only use it for companies have both A and H shares. But again, I don’t see many gems in the A share only companies in China 🙂

China index fund/ETF (FXI, PGJ, CAF)

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Shanghai Composite

Financial Media: I

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With the growth of web and blogging, there are more and more financial resouces we can turn to: we are not limited to the good old newspaper for stock prices, volume anymore. Don’t laugh at me, ten years ago I did precisely that in Shanghai. But the conveniece of data access does not come at no cost. One thing I noticed from my own behavior change is “overflow of mis-information”. Let me explain.

I remember a well known overseas Chinese web site started out with attention getting (not tasteful) news title and porn, things one would not like his/her kids to see. The motivations: attention, advertisment dollar and profit. In this “post newspaper and Yahoo”, “google and youtube are the kings” era, people are living a fast pace society, attention of pentential customers are more and more scare. The news editors/reporters are fighting for this, financial news is no exception.

Moral Responsibilty of news producer
As you may know, Chinese domestic stock market crashed lately. Shanghai composite index went from last Oct. highs of 6,000 to today’s 3,300. I think the media, the so called “experts” (from Jim Rogers to Yang Bai Wan) are also responsible for the bubble and bust in Chinese market, along with the regulatory, the mutual funds, and the naive Shan Hu (individual investors), etc.

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