The Capitalist Roader Fund is on the road again! More correctly, we’re on the open seas. Inspired to giddy capitalist excesses by the paper profit of our investment in China Vanke (000002.SZ), we have plunged into what we expect are the profitable waters of shipping and bought 100 shares of China COSCO Holdings (601919.SH) at RMB14.37 a share. Yes, we’re big spenders. Watch out, Warren Buffett with your fancy suits.
First, that paper profit. Vanke has been riding a wave of good news recently after announcing the strong sales numbers we mentioned last week. This week brought a report of record daily sales for the year in Shenzhen, where Vanke made most of its profit last year. The developer is also boosting its land bank with a RMB1 billion (US$146.48 million) investment in Changchun, Jilin province. Vanke ended the week at RMB12.47, up 4.26% from when we bought it in August. With the encouraging third-quarter GDP figures that came out this week, and talk of sustained strength in the property market, we think we’ll be holding on for a while longer.
Jiangsu Expressway (600377.SH), like most of the market, did better this week than last, but it still lagged the Shanghai Composite Index (SCI). We mentioned previously that a series of Jiangsu stake sales in Hong Kong appeared to have a dampening effect on the company’s A-shares. This week, Boston-based asset manager Wellington Management cut its stake in the toll-road operator from 5.09% to 4.98%.
That didn’t have much of an effect over the week in either Shanghai or Hong Kong, but we’ll admit that some of the initial enthusiasm we had for the company is wearing off. Excitement over stimulus-related companies may be waning as Beijing talks about withdrawing stimulus (You’ll remember we bought Jiangsu expecting a sector-wide boost around the A-share listing of Sichuan Expressway (601107.SH) in a time of heavy government spending on infrastructure). Jiangsu is now trading down about 4.3% from when we bought it; if it moves into positive territory, we’ll likely make a quick sale.
Our move into China COSCO comes just before the company releases its third-quarter results, which are expected to reveal a big bounce. We’ll have to wait to see if that translates into a stock price bounce as well, but we think the company also has a strong longer-term position. Unsurprisingly given this year’s blows to global trade, its container business isn’t doing that well – and the company posted a brutal net loss of US$671.9 million in the first half.
On the other hand, it’s generally agreed that bulk shipping, where COSCO made 54% of its revenues last year, is a strong and growing business. If China really is on a more secure path to economic growth, its hunger for commodities will feed the need for bulk shipping for some time to come. (Watch for a profile of COSCO’s H-shares in our November issue.)
The Capitalist Roader Fund is down 27.01% from June 3, 2008. The SCI is down 9.5%.