Red Dragon Fund:
With safety and liquidity a priority, we ended 2008 by selling 300 shares each of PetroChina (601857) and China Unicom (600050). We sold amid what appears to be a dispute over valuations between local brokerages and foreign investment banks.
On the one hand, the likes of Shenyin Wanguo and CITIC Securities have turned bullish on PetroChina. On the other, J.P. Morgan and Goldman Sachs expect the company’s earnings to fall by 51% and 61%, respectively, in 2009.
We concluded that index-heavy PetroChina is only likely to post a big gain in the event of a bull market – and we don’t expect to see one of those for at least a year.
The big news for China Unicom was the issuance of 3G its license on January 7. The company’s stock slumped in response. This was no great surprise – short-term speculative investors were taking their opportunity to cash out.
We may use some of our new cash reserves after the Lunar New Year holiday, as there is a chance of a small rally once trading resumes. Biotech and telecom equipment providers will be our focus.
Capitalist Roader Fund:
Just before the new year, we learned that our crimson rival had liquidated part of its holdings. We decided not to follow.
Despite the arrival of 2009, the same market dreariness that we encountered last month continues. We’re still waiting to hear news of government stimulus translating into private sector activity, and little has changed in the economic outlook.
Infrastructure stocks like Anhui Conch Cement (600585) continue to muddle along, as investors (us included) hope for a rash of infrastructure spending. Knowing what we do about the prospects for fixed-asset investment in 2009, that hope may well be false.
We go into the Lunar New Year feeling generally pessimistic. Both Anhui Conch and Industrial and Commercial Bank of China (601398) have tended to track the broader market, and though we’re doing better than the index, the fund’s performance is hardly stellar.
It may be soon be time for some of our holdings to hit the road.