Capitalist Roader Fund:
We know readers are tired of hearing us explaining why we haven’t made a move. Well, this week is no different, but a new strategy is forming. Our original macro bet thesis is clearly not paying off, so we need to abandon it, get out of macro and into some market-beating (or at least market-matching) contrarian and counterintuitive stocks. We will likely make a move early next week. Sectors we like include consumer goods, nuclear and media, but we’re not going to be more specific than that.
In terms of offloading stock, Huaneng Power (600011.SH) is in the crosshairs. It says power generation is going to be up next year, but industrial output and lending growth keeps slowing – plus there is a risk of increasing coal input prices – so we don’t share Huaneng’s optimism. We still like COSCO (601919.SH) and Guangshen Railway (601333.SH).
At Thursday’s close, the Capitalist Roader Fund was down 41% from June 3, 2008. The SCI was down 25% from June 3, 2008.
Red Dragon Fund:
As the funds keep flowing out, the equity market has been experiencing setbacks. We expect the first support level of the Shanghai Composite Index to be 2,550 points. A joint pressure test on the banks carried out by the regulators put the stocks in the finance sector under pressure as well. The good news for us is that Bank of Nanjing (601009.SH) is also favored by the social security fund – it is among the eight companies in which the security fund owns more than 5 million shares. However, the outflow of funds indicates that playing the domestic equity market could be tricky; the benchmark indexes may begin fluctuating. And Guotai Junan Securities – the best performing player on index futures with short positions – has been raising its bets recently, suggesting that institutional investors are not bullish on the short-term performance of the market.
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.