TRANSCRIPT: Chinese stocks slip, bounce back,
and slide again, impact of anticipated futures
index trading, a new ETF aims to short China,
Beijing has new rules on foreign investment but
can they prevent an ore cartel, IPOs and more...
Sinomania! Volume I Webisode 39, November 14,
Market Yo-Yo: Can You Make Money On the Downside?
Beijing Directs Investment And IPOs!
Speculation abounds as to how Chinese markets
will spend the remaining weeks of this calendar
year. The gloom and doom chorus continues to warn
of collapse and remains critical of Chinese stocks
believed overvalued. But the boosters say a year's
end rally is already underway.
What direction will the market go? One indicator
of declines to come is the anticipated debut of
index futures trading in China thus giving investors
for the first time a way to profit when Shanghai
slips. When futures gets the green light is unknown
but Chinese regulators do like to introduce surprises
particularly when things look hot.
In anticipation of index futures ProShares a
purveyor of Exchange Traded Funds or ETFs, launched
last week the UltraShort FTSE/Xinhua China 25
ETF - now trading on the American Stock Exchange
under symbol FXP. ProShares was founded ten years
ago by two Washington D.C. area securities professionals,
Michael Sapir and Louis Mayberg, and recently
won approval from the US Securities and Exchange
Commission for its unique bearish ETFs.
Here's how the new China ETF works: the fund
looks for daily investment results that correspond
to twice the inverse of the daily performance
of the FTSE/Xinhua China 25 Index that is composed
of the 25 largest and most liquid stocks on the
Hong Kong Exchange and was created by the joint
venture between FTSE (the Financial Times of London
and the London Stock Exchange) and Xinhua Finance
Limited. For example if the FTSE/Xinhua China
25 falls one percent the ETF should rise in value
by two percent.
Right now the ETF is invested mostly in financials
which are bound to be volatile but also has exposure
to energy and telecomms. Major stocks in the fund
include PetroChina, China Mobile, and China Life
- all currently traded on the New York Stock Exchange
This is an interesting new vehicle for investors
in Chinese stocks where risk is limited to the
initial investment and there are no margin calls.
Additionally, ETFs have interesting tax advantages.
As for the markets in China, it's a roller coaster
ride or yo-yo depending on your frame of mind.
The Shanghai Composite Index closed today at 5,462
up almost five percent having plunged to a two
month low only two days ago. At least for now
5,500 does appear to be a new baseline. The CSI
300 Index was at 5,145.89 on November 14 and below
5,000 just yesterday, its lowest level in three
months. Shanghai B shares closed at 344.76 today
barely up from its drop November 13 to 330 its
worst performance since early September. ShenZhen
Bs rose slightly to 721.42 from the slide that
ended Tuesday. During the slide the index hit
its lowest level in almost three months.
News from Beijing is the National Development
and Reform Commission and the Commerce Ministry
may restrict or even ban foreign investment in
areas the national government feels are overheated
and critical to China's national interest specifically
energy and mining. The new guidelines will encourage
foreign direct investment in other key sectors.
That should give investors clues as to where opportunities
may appear over the next few years. The favored
areas are environmental protection including investments
in fixing China's profound pollution problem and
renewable energy technologies, and investment
in high tech particularly advanced materials and
One of the aims of the new foreign investment
rules is to promote industrial restructuring of
China's fragmented older industries. But that
restructuring might better be helped by more foreign
investment and strategic partnerships in the very
industries to be restricted.
The big news this week is the mega merger in
Australia between mining giants BHP Billiton and
Rio Tinto. The impact of the deal would be the
creation of a de facto cartel in iron ore as the
combined Australian mining group and Brazil's
CVRD would control about 80 percent of the overseas
trade and be in a position to hold Chinese iron
and steel makers hostage over prices.
Rumours are flying that Chinese steel giants
are trying to buy stakes in Rio Tinto but companies
on both sides deny it. China has voiced before
to Australia the importance of forming what it
calls 'strategic partnerships' over a buyer/seller
relationship. Ironically, merging BHP Billiton
and Rio Tinto may free up assets in energy and
one rumour was that BHP advisors already went
to China to market its petroleum and gas properties.
Speaking of strategic partnerships, China's new
sovereign wealth fund announced its biggest foreign
investment yet a $4 billion US dollar agreement
with Bandes, the state development fund of Venezuela,
for exploration in the oil-rich Faja del Orinoco
As expected, PetroChina raised billions in Shanghai
and its foreign listed shares bounced back quickly
from their much talked about brief dip. Bear Stearns
got Warren Buffet's newsletter late but is now
telling clients it's time to take profits.
Alibaba finally debuted last week on Hong Kong,
quickly tripled in value, then dropped on profit
taking. The company raised about $1.7 billion
US dollars almost as much as Google did when it
IPO'd in 2004.
Shandong based SinoTruck which has a joint venture
with Volvo, is expected to IPO on Hong Kong later
this month priced at $10 to just under $13 Hong
Kong dollars. The company hopes to raise over
a billion US dollars to increase production of
its large tonnage cargo trucks.
And here's one for Europa - Asian Bamboo, a Chinese
bamboo products company, will IPO on Frankfurt
November 16 and has moved its headquarters to
Hamburg in anticipation. The company's young founder
Lin Zuojun hopes to raise up to $180 million US
dollars to lease new plantations in southeast
China and fund a bamboo flooring factory.