With the Shanghai Composite Index (SCI) down from midweek highs, it wasn’t a very pleasant day for anyone: Markets closed with a 1.6% weekly loss. Increased concerns about credit tightening are driving investors away from risky assets, and the upcoming Lunar New Year holiday means that investors might be looking toward their families and travel plans rather than the newest market data. With no clear idea of the process or extent of the government’s future credit tightening policies, the only exuberance this week occurred in Tibetan tourism and pharmaceutical stocks, which jumped as much as 10% following a policy conference that decided to boost investment in China’s Western regions.
Both our long-held China COSCO (601919) and our new acquisition Huaneng Power (600011) closed the week down. Our initial long-term expectations of China COSCO still hold true – increased global demand and hunger for commodities at home will increase profits for the international shipping company. The decision to purchase 100 shares of Huaneng Power at RMB7.34 (US$1.07) per share was based on the Capitalist Roader’s belief that diversified energy companies remain strong mid-term investments as the government pours money into developing China’s electrical grid and alternative energy resources. Coal prices have shot up 40% in the past seven months, but this week, spot prices for coal imported at Qinhuangdao finally fell. While the drop may only be temporary, we expect Huaneng’s fortunes to rise as it feeds China’s seemingly insatiable energy needs with new coal and wind capacity.
So far, despite claims at the beginning of the year, the Capitalist Roader’s appetite for risk has been relatively small. Until Beijing’s plans for market tightening are known, we prefer to keep some cash on hand to go bargain-hunting when the other shoe drops. Huaneng Power is our relatively safe bet for the present.
The Capitalist Roader Fund is down 35% from June 3, 2008. The SCI is down 14.4%.