All this weighty thinking took its toll on the A-share indices as they came off the frothy highs engendered by reform of government shares in December and January. The official press remains positive on stocks but both government officials and investors have been busy minding the NPC, leaving the serious business of pushing up markets on hold.
I have to enjoy a quick pat on the back for deciding to buy Huaxia Bank 600015 CH, whose share price has gone up from RMB5.31 to RMB6.05 – a 13.9% rise – on talk of increasing its capital to develop retail banking and other business lines. The Bank has already sold a combined 14% stake to Deutsche Bank and to German investment house Sal Oppenheim; adding financial capital to international management expertise bodes well for the House of Huaxia.
As for Minsheng Bank 600016 CH, the big news was its application to open a fund management joint venture with Royal Bank of Canada, which is returning to the China market after a five-year absence. However, our investment here was more of a bittersweet experience than Huaxia: the Minsheng share price rose from our purchase price of RMB4.44 to peak at RMB5.26 before falling back to the current RMB4.87. Too bad we only meet once a month – we could have locked in a whopping 18.5% gain instead of the current measly 9.7%. Now this won't happen again if you'll just sign this here itty-bitty little ol' power of attorney giving me sole trading rights to our account?
Bank of China is due to list in summer – scandals in Heilongjiang notwithstanding – and Industrial and Commercial Bank of China is due out in third quarter so the banks have a lot more play in them. The latest take on the banks is that investors look on scandals as good news, interpreting this to mean that there is less bad news waiting to come out.
If your children wrote that in a fifth-grade essay they would be gently corrected; if they wrote that in a college research paper they would be flunked; but if otherwise sophisticated investors say this then we are supposed to pay them commissions for their sound advice. The bottom line: people are ready to buy China banks, so don't fight it. We'll roll the dice again here.
We appeared on course for a soaking – so to speak – on Shanghai Raw Water 600649 CH, which fell about 1.5% during the month. However, it turns out our broker has been sleeping on the job and by the time he'd rubbed his eyes and read his orders, Shanghai Raw Water had suspended trading. Fate turned off the tap before we could fill our pitcher, it seems.
Policy emphasis on agriculture and on developing China's western hinterland to us spells good news for agriculture firms out west. Gansu Mogao Industrial Development 600543 has registered double-digit increases in production of barley and grapes/wine. Operating margins of just under 10% are encouraging for an agribusiness, but EPS fell in 2004 on a fundraising that doubled assets. The fundraising also raised the P/E ratio to 30 times historical EPS but look for that to change with the 2005 earnings.
Way out west
Going further west, Xinjiang Guannong Fruit and Antler 600251 grows pears and provides deer antlers to the traditional Chinese medicine trade. Revenues from pears have grown an average 84% over the past two years, while sales of deer antlers have horned ahead at over 400% average growth for the same period. The P/E is a whopping 60 times but the stock is tied both to agricultural policy support and to China's consumption as spending on non-essential health treatments (deer antler qualifies!) rises with incomes.
As with all agriculture firms, look for growing pains and increased risks from the nature of the business, but macro factors are in. We'll take what would have been spent on Shanghai Raw Water and will buy equal values of Gansu Mogao and Xinjiang Guannong. See you next time!
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