TRANSCRIPT: Chinese markets continue
down, private equity firms plan billion$ in China
investments, business news on macro conditions,
autos, and more, and upcoming IPOs...
Sinomania! Volume II Webisode 49, February 21,
2008
Buying Time Is Here!
Private Equity Buys Chinese;
A Business News Roundup;
And This Week’s Alpha Bet!
BUYING TIME
Chinese shares have lost up to a
third of their value since the highs of fourth
quarter 2007. Is the slump over? Are markets corrected
yet? Sentiment at large remains flat. The Shanghai
Composite sank to 4,453 during the day February
21 but closed down at 4,527, still struggling
around my 4,600 baseline. The CSI 300 Index pierced
5,000 for a day but is back down again at 4,876
and is down about fifteen percent since the year
began. Shanghai B shares remain down at 318.98
so far this week, well below the start of the
year. And ShenZhen Bs continue to slide and closed
down again February 21 at 646.66.
Reports are that investor enthusiasm
in China is waning but private equity firms are
raising money all over the world and eyeing China
once again, this time hunting for bargains.
Black Rock, the giant New
York based and New York Stock Exchange listed
(BLK) investment company with over one and a third
trillion dollars under management, opened its
Beijing office this week. With Bank of China Black
Rock will launch a $10 billion Yuan (around one
and a half billion US dollars) stock fund. The
company is asking to manage new investments valued
up to $30 billion US dollars for China Investment
Corporation, China ’s Sovereign Wealth Fund. Black
Rock’s global fund manager Larry Fink believes
there are a number of Chinese stocks today that
“represent some very strong value” although he
believes the market has yet to hit bottom.
Private equity firm Blue Ridge
China, a Beijing based affiliate of America’s
Blue Ridge Capital, has raised almost one and
a half billion US dollars from retail investors
in the USA and the Middle East to fund new Chinese
startups. The investment period is five years
and the focus is retail, real estate, agricultural
processing and other areas.
Also in China, the People’s Insurance
Company Group or PICC, a leading property
insurer, is planning a private equity venture
of unknown value. The company is also eyeing an
IPO on Shanghai ’s domestic market.
And JP Morgan anticipates
private equity investment of three quarters of
a billion US dollars this year in Asia most likely
China. That is double the exposure from last year.
BUSINESS NEWS ROUNDUP
News of China ’s Sovereign Wealth
Fund, something we watch closely here at Sinomania!,
is that the China Investment Corp. will begin
hiring money managers for its overseas equity
investing soon. The plan is not yet public so
there few details but the intent is to hire two
to three companies for each of the fund’s four
mandated areas: investment in natural resources
particularly in developing countries, acquiring
foreign technology, research and development ventures,
and brand name businesses of the most advanced
economies.
Signs are back of a restructuring
of China ’s giant state aerospace conglomerates,
AVIC I and AVIC II. The head of China ’s Commission
of Science, Technology, and Industry for National
Defense, Huang Qiang, said a leader and designer
for a new venture to build large capacity wide
bodied jet aircraft to satisfy domestic demand
for big passenger jets and compete directly with
Airbus and Boeing will be decided by March. This
will be an interesting one to watch as it will
involve a lot of mergers and possibly the listing
of some Chinese aerospace assets.
In macro news, inflation rose over
seven percent year-on-year January, China ’s trade
surplus was bigger than forecast, and money supply
grew the fastest in almost two years. The Chinese
central bank responded saying that Beijing will
use “innovation” in monetary policy this year
but gave no other clues.
The Yuan reacted by appreciating
faster to close at Shanghai this week at 7.1436
per US dollar. The Yuan has gained over two percent
so far this year. It gained seven percent in 2007.
The majority of analysts believe the Yuan will
reach 6.70 to the dollar by the end of this year.
China’s automotive sector continues
to heat up. China bull Donald Straszheim of Roth
Capital Partners predicts Americans will be buying
two million cars a year from China by 2018. The
list of Chinese companies and foreign joint ventures
planning car exports to the USA is long and growing.
So far, though, none is yet on track.
Chery Automobile, I believe,
is still the front-runner to make a major impact
on car sales in the United States. Chery said
this week that the joint production agreement
with Chrysler is still on but not to expect any
major development soon. A Chrysler spokesman said
they want to export small cars from China as soon
as possible to North America and Latin America
but not until all global standards are met. The
new target date is 2009 for exports. Chery already
exports to 50 countries accounting for 25 percent
of sales in 2007. I have no update on the possible
Chery IPO.
THIS WEEK'S ALPHA BET
This week’s Alpha Bet starts with
a number: one, that’s the number of China IPOs
so far this year on Hong Kong. The IPO market
appears to have dried up but there are signs of
new opportunities coming.
Two are expected soon: HongHua,
a Chengdu-based oil rig manufacturer, for an exciting
energy security play, and the anticipated IPO
of China Railway Construction.
China Railway Construction
received approval late last week for a dual A+H
or Shanghai and Hong Kong listing soon estimated
at $4 billion US dollars, the biggest IPO so far
this year in global markets. The company will
benefit from an expected $173 billion US dollars
worth of government investment in Chinese railways
over the next few years. The company’s rival,
China Railway Group, has appreciated over 60%
since its IPO in December 2007. It trades in Hong
Kong under symbol 0390.HK.
Shanghai Pudong Development Bank,
which is part-owned by Citigroup, is planning
to sell up to a billion new A shares very soon,
an announcement that caused the bank’s shares
to drop the maximum ten percent on the Shanghai
exchange. Rumours continue to plague Chinese financials
about hidden exposure to the growing non-performing
loan crisis in the United States.
