Red Dragon Fund:
Taking advantage of the recent rally, we sold China Unicom (600050) at RMB6.62 (US$0.97) on May 8.
Although we believe the firm faces increased competition in the medium term, our withdrawal had more to do with the unwinding of 10.755 billion restricted shares on May 14. Unicom is now fully floating and its tradable share volume has doubled. The key shareholder is unlikely to sell up, but there is uncertainty over the stock’s prospects.
The Shanghai Composite Index (SCI) has enjoyed a good run, rallying from 1,000 points to 2,600-plus. Now, though, the party is coming to a close. Trade volumes are tapering off while the prices of blue-chip stocks remain strong. This suggests institutional players are using them to conceal their retreat and cashing in on their small- and mid-cap holdings.
PetroChina (601857) has benefited from this flight to quality, rising to nearly RMB13. It also helps that both the government and PetroChina itself expect an increase in global oil prices. We will maintain our position and see what happens.
Capitalist Roader Fund:
Yes, yes, we know. We should have held on a little longer. Back in February, with the Shanghai Composite Index (SCI) at around 2,300 points, we decided to dump our holdings in Anhui Conch Cement (600585), the country’s largest cement producer.
While we’re not experiencing “I sold Microsoft in ’86”-style pangs of guilt, we have watched with gritted teeth as Conch sailed from our RMB32.90 (US$4.82) exit point to over RMB45 in mid-May. That means it’s up 73% this year, against the SCI’s not-too-shabby 45%.
Our goal as a fund had been to beat the index, and in that we’ve been delinquent. Still, as the Red Dragon Fund indicated with its selling of China Unicom (600050), we’re not the only ones with doubts about this rally.
Managing a cash-only fund when we can’t do anything fun with that cash (this is an editorial exercise, after all) can be dull. With no means of shorting the market – that’s a financial innovation Shanghai is still waiting for – we doubt we would make money if we were to get back into the market, although it would make for good copy.