Capitalist Roader Fund:
We’ve been saying the same thing for a long time now: Whatever rally we’re seeing now is doomed, based as it is on false hopes for the stimulus package.
Last month, we severed our connection with Anhui Conch Cement (600585), China’s largest cement maker, and the focus of many investors’ hopes and dreams. We argued (and still believe) that government spending would not make up for disappearing private investment. Nevertheless, that stock is up about 8% from where we sold. It remains to be seen if this bullishness will survive past Conch’s first-quarter report.
Given our distrust of the rally – and our goal of beating the index – it seemed a reasonable course of action to sell Industrial and Commercial Bank of China (601938), an index-heavy stock if there ever was one. We did this on March 6. The stock has since continued to track the market.
We’re considering two options: Sitting on cash or stepping back into the breach with some volatile, small-cap stocks. The former seems wise, the latter potentially much more interesting.
Red Dragon Fund:
The Red Dragon Fund watched with interest as our sister fund decided to exit the market. While we don’t expect much of a rebound in the near-term, the Red Dragon Fund will maintain its current exposure to China Unicom (600050) and Petrochina (601857) as both companies show solid fundamentals.
China Unicom’s 3G roll-out continues, with the completion of the WCDMA network in Zhengzhou, the capital of Henan province, last month. Meanwhile, PetroChina’s stock has hit bottom, and we expect good things of it and China COSCO (601919). Both stocks are heavily index-weighted and their turnaround may lift the whole market.
As of mid-March, the Shanghai Composite Index was buzzing around the 2,200-point mark. It was suggested the index might hit 2,400 in early April, before retreating again. As we said, our holdings appear to be good long- term plays.