Capitalist Roader Fund:
The Capitalist Roader Fund ends slightly down this week, paying once again for our inaction. We are up slightly over the past two weeks, but then again, so is the Shanghai Composite – and it’s up more than we are. The SCI gained 3.23% between Monday July 26 and Thursday’s close, while our best performer, China COSCO (601919.SH) rose just 2.67%.
There is increasing talk of economic slowing, though this has to be taken in context – yes, 9% growth is slow compared with what we saw earlier this year, but still represents a stunning pace of economic expansion. Still, there are major economic worries on the horizon, and investor happiness about Beijing’s decision to delay the removal of stimulus measures won’t last forever. Neither will those stimulus measures, of course. Beijing can continue to try to spend its way through this, but the longer it does so, the greater the economic distortions it will create, and the greater the pain when it eventually tries to extricate itself from stimulus obligations.
There’s been good news, at least, for China COSCO, which expects a return to profitability after the shipping business rebounded in the first half.
At Thursday’s close, the Capitalist Roader Fund was down 40.66% from June 3, 2008. The SCI was down 23.7% from June 3, 2008.
Red Dragon Fund:
We bought Bank of Nanjing (601009.SH) last Friday, but didn’t stop there. We tried a speculative trade on China Sports Industry Group (600158.SH) on Monday, anticipating the 100-day countdown on August 4 of the 16th Asian Games in Guangzhou. However, we didn’t see any surprises from Asian Games concept stocks, and we sold the next day at almost the same price.
We believe Bank of Nanjing is a safe bet, as its price is less than China Merchants Bank (CMB, 600036.SH) – RMB11.56 to CMB’s RMB14.03 at Thursday’s close – but the mid-cap bank’s first-quarter EPS bettered its bigger rival.
We are still wondering about the mid- to long-term trend of the A-share market as a whole. The impact of a bursting real estate bubble could be catastrophic, but it’s not clear if or when it will happen. We may also see a surge in domestic indexes as funds from the real estate sector pour into the market ahead of an eventual collapse.
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. Both funds are run solely as an editorial exercise.