Capitalist Roader Fund:
What to do as the Shanghai Composite Index (SCI) floats around 2,800 points while nothing in the fundamental economy has changed? As we enter another month as a cash-only fund even as the SCI has continued to climb (it’s up more than 50% this year), we find ourselves pondering that question a lot.
Our sale of Anhui Conch Cement (600585) at RMB32.90 in Feburary was not a dumb move, but was perhaps a month or two too early. It hit a high of RMB45.87 in early May, but has since dropped back below RMB40. That is somewhat surprising, especially considering that cement has been one of the sectors to benefit most from rising fixed-asset investment this year.
Property stocks have been doing rather better. Poly Real Estate (600048) is up about 112% this year while China Vanke has gained about 70%.
Our fund manager foolishly ignored a suggestion to buy into Vanke soon after our sale of Conch. Given the forecasts for rising private investment in property in the second half of the year, he may be more open to such suggestions in the future.
Red Dragon Fund:
PetroChina (601857) remains the Red Dragon Fund’s only holding at present. We don’t plan on selling it.
With global crude oil prices approaching US$70 a barrel, PetroChina is well positioned to make profits. Tony Hayward, the CEO of BP, noted recently that US$70-90 would be a reasonable range for oil prices – it would allow the oil producers to invest in new capacity while meeting global needs. The consensus opinion of China-based analysts who cover PetroChina is similar.
Meanwhile, as of mid-June, the Shanghai Composite Index (SCI) had retreated to 2,750 points after topping 2,800. Owners of once non-tradable shares, which have become tradable as part of market reforms, are busy cashing out. In the first 10 trading days of June, total share sales came to US$462.7 million, more than for May as a whole. And the stocks in question are still trading at a discount, which suggests the holders are eager to lock in their profits.
As for our strategy, we are now looking at possible financial sector plays. We want to take advantage of any further adjustments in the market.