As we look at another week in the life of the Capitalist Roader Fund, we are once again finding comfort in the knowledge that the vast majority of our losses occurred in the fund’s early months – those heady days when we thought Anhui Conch Cement‘s (600585.SH) P/E ratio of 32 was about right. If you’re in the mood for a good laugh, go and read some of those earlier posts.
We should, of course, have stayed liquid from the beginning. That became clear quite early on, but would have made for a boring fund (and by now, we’d be tired of writing “we told you so” week after week). As it is, we’re down more than 47% since June 3. (Meanwhile, the index is down about 44%.)
So here we are, losing money and trying to rationalize our terrible investment decisions. Anhui Conch is not making that any easier: They came out this week and shot down our last, gossamer-winged fairy of hope – that strong investment in infrastructure (such as the railway construction detailed in our October special report) would keep demand for cement strong despite a slowing economy. The theory is that heavy infrastructure spending would reinforce prices.
But Anhui Conch has now warned that it expects cement prices to fall in 2009 as the property sector craters. That news drove shares down by the daily limit of 10% on Thursday, and they’re down almost 5.8% so far today.
All this means that Anhui Conch has fallen a breathtaking 67.5% since June 3. Its P/E ratio is now hovering below 10.
I recently asked an economist about A-share valuations. His view was that the current market levels seemed about right, and noted that we would have to reassess our expectations of P/E ratios. There may have been a time when a P/E ratio of 32 was acceptable, if not totally justifiable – those days are over. We’re still trying to figure out what comes next.