Red Dragon Fund:
The benchmark Shanghai Composite Index (SCI) rebounded to around 2,000 points having bottomed out at 1664.88. We expect it to continue its rally to the 2,200 mark because fund managers need some good news to put in their annual investment reports.
However, the SCI may head downward at the beginning of 2009 so we may take advantage of the coming rebound to reduce our equity position.
PetroChina (601857), our largest holding, unsurprisingly did well out of the rebound (shame about its struggles just beforehand), passing RMB12. Although oil has fallen below US$60 a barrel on NYMEX, local processed oil prices are unchanged, which implies a crude oil price of US$140 a barrel. With the special oil gain levy tumbling and price changes for local processed oils lagging, we expect good things of PetroChina.
Lao Jianhua, secretary to the board at China Unicom (600050), said on November 12 that the firm’s state-owned parent had been buying back its own stock as a demonstration of confidence. We expect RMB5 to be a solid support level for the stock and are ready to add weight should the price slip below this level.
Capitalist Roader Fund:
Finally, some respite. Ever since the fallout from the Sichuan earthquake and talk of a spike in cement demand for use in the reconstruction efforts, we have been waiting for Anhui Conch Cement (600585) to deliver some good news.
This arrived in the form of the government’s US$586 billion fiscal stimulus package, which includes ample provisions for infrastructure. Anhui Conch soared 30% during the week of the announcement and we are now down a "mere" 58% from our purchase point in June.
The stimulus package was one of those floats-all-boats scenarios and our other holding, Industrial and Commercial Bank of China (601398) also fared well, albeit not nearly as well as Anhui Conch.
It remains to be seen whether this latest action marks the rejuvenation of stock market or another false dawn. This is one of reasons why we have maintained our hold position.
Virtually all the macro indicators are pointing the wrong way and, despite this stimulus, it would be naïve to say that a further decline wouldn’t hurt equities.