Don’t get your feet stuck in wet cement now. A week ago, the average sales price of cement in China recorded its first uptick since the beginning of the year, a modest week-on-week increase of 0.05%. In 2014, the average price has fallen more than 5% and the seasonal recovery in the market this year has come three weeks later than last year, according to Japanese financial holding company Nomura. Despite the slower pick up, there might be room for a buy on cleaner cement as environmental regulations shut down polluting cement factories. Lower-grade cement called PC32.5 comprises about half of China’s cement consumption. The factories that produce this kind of cement are usually small and pollute more. It’s rumored that tougher environmental laws will shut down some of the PC32.5 capacity this year, clearing out small, inefficient producers, says Mark Po, an equities analyst at UOB Kay Hian in Hong Kong. “This means the industry will be healthier,” he said. Anhui Conch Cement (HKG.0914) could benefit from the tougher regulations. UOB says now is a good time to buy Anhui Conch. Barclays Research in a report last Friday recommended adding more of Anhui to portfolios.
Catch us if you can: Audi and Mercedes shift to a higher gear
German businesses like to defy the market. How many times have they outperformed their peers in their core strengths? In March, the China auto market saw sales of passenger vehicles rise 9%, according to the Passenger Car Association. But sales of Audi (NSU.ETR) and Mercedes Benz jumped by more than 30%. These are luxury marques that retail for many times the price of most standard vehicles. So much for the slowdown in the broader economy and cutting back on the purchase of high-profile items in the wake of China’s anti-graft program. Such strong sales last month speak of the “strong model policy” of the automakers in China, Frank Schwope, an analyst with investment bank Nord LB, said on the phone from Germany. German carmakers have been effective at localizing products and creating “car designs fitted the tastes of Chinese car buyers.” Both firms have introduced long-wheelbase variants – more legroom, hence more luxury – of their cars for wealthy Chinese who employ chauffeurs. Schwope doesn’t foresee any challenges to their continued dominance in China’s mid-level luxury car market but major rivals have announced plans to come after them in that segment. If they get enough traction to eat into the sales of the German giants, then that would “figure heavily” in Schwope’s ratings for Audi and Mercedes’ parent Daimler (DAI.ETR).
Cracks appear in the Great Investor Wall of China
Imagine two camps of cash-rich investors sitting atop piles of money on opposite sides of a fence. Each side is desperate to transfer its capital across the border. That is a rough description of the scene in Hong Kong and Shanghai these days. Investors in both financial centers want access to the other. This week the first signs of crack in the virtual fence between them appeared. Regulators said that wealthy mainlanders will be able to buy Hong Kong stocks through the Shanghai bourse, and vice versa, under a pilot program that will start in six months. Although carefully regulated with fixed quotas, the program should boost the fortune of local brokerages who have suffered from the poor performances of both the Shanghai and Hong Kong stock exchanges. “We believe that the mutual market access between SSE and HKEx will benefit the brokerage business of the big Chinese brokers,” Jerry Li, an analyst with BOCOM International in Hong Kong, wrote in a note on Friday. Li put CITIC Securities (6030.HKG, 600030.SHA) as his top pick given its leading position in the A-share market and recent acquisition of top regional broker CSLA. Galaxy Securities (6881.HKG) is also worth following.
Rumors have leaked that the potential listing price of pork producer WH Group, the company formally known as Shuanghui that bought up the US’s Smithfield Foods for US$8 billion last year. Financial Times puts the IPO at US$6.2 billion, which would value the company at up to US$21 billion. WH Group will officially price its offering later this month. There are no mainland listings in Hong Kong next week.
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