Capitalist Roader Fund:
While we were excited last week about moving funds into China Oilfield Services (COSL; 601808.SH), a subsidiary of CNOOC (CEO.NYSE, 0883.HK), we forgot to chequer the the exchequer. It is mysteriously short on cash, so instead of buying COSL – which nearly doubled in value last week – we are forced to contemplate strategies involving private-equity placements in noodle carts and splat-frog peddlers until our portfolio produces a position worth cashing out of. We take some cold comfort in the fact that one performance metric – the performance of our current stock mixture since the beginning of 2010 – has closed on the Shanghai Composite Index (SCI), which is down 14% ytd while Capitalist Roader’s current stock mix has dipped 21.6%. Of course, this statistic isn’t very representative since we didn’t buy Joyoung (002242.SZ) until this summer, and sold most of our prior holdings at a loss. But we are sick of looking at the comparison since June 3, 2008 and as our cash management shows, we didn’t do the math very well.
The SCI continued to decline this week, closing at 2,810 on Friday afternoon, based on reasonable expectations that the central government is going to raise rates again and slow growth. We wish this sort of thing had more effect on real estate markets (which are resolutely ignoring Beijing)than on the stock market, which is back in an pre-unobserved-holiday funk.
Red Dragon Fund:
SAIC Motor (600104.SH) has been underperforming in the recent weeks. An important reason is objections to its private placement plan – to issue no more than 900m additional shares to as many as 10 specified investors for around RMB10 billion – which was approved by CSRC on November 26. It is likely that the target investors are hammering the stock to get a desirable trade price. As the private placement process comes to an end, we expected SAIC to return to a fundamental-driven trend. Guangfa Securities estimates the company to archive an EPS of RMB1.6 (without factoring in the private placement) in 2010. We expect it to hit bottom this month, together with the general A-share market. In short, SAIC is now underpriced by 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.
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