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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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China ADR crashed

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(Update) Halter US China Index closed down 7.89% and FXI down 7.55%. China Mobile (CHL), a major component of both index, is down 7.79% today.

FXI (FTSE Xinhua 25) dropped 7.23% as of now 11:27 AM US CST.

Halter US China Index (web site), which is more broad based Chinese ADRs traded in the US (although PetroChina, China Mobile has a bigger weight), dropped 7%.

And last but not least, trader818 China ADR index, dropped 8.4%.

Sounds a lot like the Feb 28, 2007, except the bear comes early this year. Although the general US market also dropped a lot, this Chinese drop seems a bit excessive. I unloaded some LFT today (yes I decided to take the bite, rather than hanging there dead). I think going forward small cap Chinese ADRs, especially newly listed IPOs, will perform wose than the large cap ones. Just like the “2-8” and “8-2” phenomena in China domestic market, when things are uncertain, stay with the big guys 🙂

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China corporate tax rate reform: winner and loser

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The following screen shot is from Capital Week Jan 5, 2008


We know from Jan 1 2008 China will have a unified corp tax rate of 25% (some tax rebate for certain industry and foreign enterprises will still apply for a while).

It appears retailer, bank, home builder, and telecom (include mobile phone) will be the big winner here as they are paying a rate of 37%, 34%, 35% and 37% in 2007, respectively. From year 2008 they will enjoy the lower rate of 25%.

On the other hand, it will have little effect for Information technology, automotive, and machinery etc. as they are enjoying lower tax rate and will enjoy it for a while.

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Holiday reading etc.

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The Chinese market closed for a week during this national holiday. The HK and US market is still open. There are lots of actions of Chinese stocks in those markets. From the blue (red) chips (such as LFC), to more speculative ones (such as EFUT). It appears to me the valuation of FXI, LFC etc are no longer attractive anymore. But at the same time we can not ignore that the new money is continuing pour into those hot stocks.

My job is not to predict the market, nor am I an expert on FXI and LFC (although I did talk about those two a while ago). I picked up Philip Fisher “common stocks and uncommon profits” instead*. Phil wrote the book more than 50 years ago, but the 15 points to find the great stock still holds: product service, R&D, profit margin, sales, management,…

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Got Yuan?

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Yuan CNY RMB Pic

It’s the Chinese Yuan (CNY), or Ren Ming Bi (people’s money). In early march, when I was in Shanghai, one USD is worth 7.72 Yuan, now it’s about 7.56 Yuan, a loss of about 2% in about 4 months. It appears this trend is not going to stop for a while. This is scary if you happen to make money in USD, save it USD and plan to retire one day in China. Because the dollar may drop faster than the rate of saving. So how do we play this?

Besides buying Chinese real estate, or buying the A-shares in Shanghai or Shenzhen (or H-shares in HK), there are other options. The mutal funds with a focus on China, or Chinese ADRs (stocks) traded in NYSE or Nasdaq. Some of the well known names include:

FXI: the full name is iShares FTSE/Xinhua China 25 Index, you can see its holdings here: it’s basically a basket of Chinese red chips traded in HKSE, such as CNOOC (CEO), Petro China (PTR), China Mobile (CHL), China Life (LFC). Those stocks are also traded as ADRs in NYSE (you may click on the ticker above to check out each stock).

LFC: on the surface LFC is a life insurance company in China. It’s more than that. It actually is a holding company of many domestic companies. For instance, it has significant stakes of MingShen Bank (600016), and Citic Securities (600030), both of them are listed in Shanghai Securities Exchanges (SHSE).

Both FXI and LFC have done very well lately, as you may know, because of the red hot Chinese stock market. I don’t personally own them. But my friend Sun has LFC, and it has done very well for him (of course he bought it long time ago so his cost is much lower). I think those two are good options if one doesn’t want to spend much time on stocks: keep in mind if you plan to hold it for long time, you can wait for a pull back to build your position.