The Red Dragon Fund launched in August 2005 and is run by an industry professional. The Capitalist Roader Fund launched in June 2008 and is run by CHINA ECONOMIC REVIEW’S editorial team. Which one will prevail?
The Red Dragon Fund did not participate in any transactions over the last month. The Shanghai Composite Index (SCI) has been struggling at around 2,700 points and we expect to see it fluctuate between 2,500 and 3,000 in the medium term. Should it slip below 2,600 we will look to add to our holdings.
Meanwhile, the pricing of the stocks we currently own, PetroChina (601857) and China Unicom (600050), has become more appealing. In recent weeks, the international price of oil has slipped somewhat and this has benefited China’s big two state-owned refiners, PetroChina and Sinopec.
Two more price hikes for processed oil are expected, which will offer more support to PetroChina’s share price.
Last month, we said China Unicom was undervalued and nothing has changed here. The benefits of telecom industry restructuring have yet to be priced in and it’s possible the share price could return to double digits.
Looking back at the tumultuous second month of the Capitalist Roader Fund, about the only thing we gained was gray hair and, we hope, the wisdom of experience.
Our last purchase, of Industrial and Commercial Bank of China (ICBC, 601398) on June 18, was made on the assumption that the markets would rebound. Despite a few bright days, what followed could more accurately be described as retrenchment.
Our first buy, Anhui Conch Cement (600585) has performed poorly. Between June 3 and July 18, the company’s shares fell by more than 32%. Fortunately, ICBC has fared slightly better, losing just 3.92% in value.
Although naturally reluctant to increase our exposure to the market, we have been monitoring other companies as potential buys.
China Southern Airlines (600029) saw its shares soar 8.66% on July 18, following news that it would cut executive salaries to save on operational expenses. That put it up 3.03% from July 7, when we started watching it, and left us kicking ourselves over a missed opportunity.
But for now, we’re holding steady. Both Anhui Conch and ICBC still have potential, which we are looking to realize.
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