Capitalist Roader Fund:
At long last, the Capitalist Roader Fund gets back on the road. First, although last week we threatened to offload Huaneng Power (600011.SH) after it intimated it plans to go on an overseas acquisition binge, we decided to hold on for a bit longer. We are waiting for some more detail on the proposed US$1.2 billion acquisition of US-based Intergen, which controls 8,100 megawatts of installed generating capacity in Australia, Mexico, the Netherlands, the Philippines and the UK. The firm is also picking up mordant assets from India’s GMR Infrastructure (532754.BOM), which owns half of Intergen. An increase in revenues sounds great. Overpaying for assets, on the other hand…
We still hold COSCO (601919.SH), as we are pleased with reports of improved shipping prices and profitability, but Guangshen Railway (601333.SH) got the boot. We sold all of it, at a loss. While government spending isn’t going to disappear, the stimulus boost isn’t going to materialize.
But on to the real action: We have made a venture into the consumer market, buying 100 shares of soy milk machine maker Joyoung (002242.SZ) at RMB15.65 per share. Joyoung has been moving into first-tier markets on the wake of the melamine scandals, and continuing revelations (and false accusations) related to problems with milk products will push more consumers toward making their own milk. It has a decent balance sheet and has been outperforming the index for the last several months.
At Thursday’s close, the Capitalist Roader Fund was down 40.22% from June 3, 2008. The SCI was down 22.41% from June 3, 2008.
Red Dragon Fund:
The Red Dragon Fund sold Bank of Nanjing (601009.SH) for a tiny profit on Thursday. We believe the rebound came to an end after the Shanghai Composite Index topped 2,700 points – and today’s loss appears to confirm that.
Guotai Jun’an Securities (1788.HK) is known for being bearish, and it raised its short position on September index futures. We see that as remarkable evidence that brokers are not optimistic about the market’s chances in September.
Shanghai International Airport (600009.SH), our only remaining holding, has been resilient, and we hope it will climb back to the price where we bought it. Directed by the State-owned Assets Supervision and Administration Commission (SASAC) in Shanghai, the company may finally begin its acquisition of Hongqiao Airport as consolidation of state-owned enterprises goes ahead. That is sure to strengthen the company’s competitive capability and its stock price.
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.