Capitalist Roader fund:
We did not take advantage of the market’s drop at the end of August, which may have been a missed opportunity. Nevertheless, the September rebound meant that our holdings didn’t fall further. It was the least we could ask for.
Jiangsu Expressway (600377) was given a short boost by its announcement of a US$141.31 million net profit in the first half, but that was unable to break it out of the late-August slump that took the Shanghai Composite Index below 2,700 points. It has since recovered, along with the market.
Jiangsu shares remain down about 8.5% from when we bought in, but we’ll hold on to it for a while. Put simply, the factors we looked at when buying – particularly the company’s strong balance sheet and positive earnings growth – haven’t changed.
Meanwhile, China Vanke (000002) shareholders approved a new public share offer to raise up to US$1.6 billion for new developments. Encouraging signs about confidence in the property sector helped to keep the firm’s shares strong despite concerns that additional supply would hurt valuations.
Red Dragon fund:
The big news for the Red Dragon Fund was PetroChina’s (601857) first-half results, which saw net profit slip 7.4% year-on-year to US$7.3 billion.
Given West Texas Intermediate and Brent crude oil prices dropped 53.5% and 52.5% respectively over the first six months of 2009, we aren’t discouraged by the lackluster showing. What’s more, PetroChina’s profit showed a remarkable quarter-on-quarter improvement over the period as oil prices recovered.
We engaged in a speculative trade recently, taking advantage of the market modification. We bought Shanghai Pudong Development Bank (600000) at RMB18.97 and sold it a couple of days later at RMB20.45. This made for a nice 8% return. The bank is likely to play a key role in the Shanghai government’s plan to consolidate the financial assets under its governance, so we may jump back in if the price falls below RMB20.
In the month ahead we expect the Shanghai Composite Index to stay around 2,800-3,100 points. If it doesn’t, Beijing may intervene once again, buying index-weighted stocks to stabilize the market.