Red Dragon Fund
It has been a disappointing month for the Red Dragon Fund as two attempts to extract short-term gain in the climate of market misery came up short.
Our first punt was on Maanshan Iron & Steel (600808) on August 5, using around half of the cash left in our pot. Given that the stock had closed down seven days in a row, we thought there was a chance it might end its poor run, perhaps as a result of general upswing in the market.
However, a closer look at the iron and steel sector suggested that stabilization wouldn’t come any time soon and so we sold out the next day for a tiny loss.
As the Shanghai Composite Index (SCI) continued to fall, we tried the same trick with Bank of Communications (601328). Once again the market turned out to be weaker than we thought.
We are not inclined to sell PetroChina (601857) or China Unicom (600050) with the SCI still lagging below 3,000 points. We continue to believe both stocks are mispriced.
Although we are conscious of portfolio security, we don’t want to get left behind if the index suddenly bounces. As such, don’t be surprised if we try a little more speculative trading in the coming weeks.
Capitalist Roader Fund
Old habits die hard, it seems. We’re ruing the day we saw anything sexy in cement. Our first buy, Anhui Conch Cement (600585), fell more than 53% between June 3 and August 18 – but we have yet to sell it.
If there’s a bright side to this sorry situation, it’s that Conch’s descent has slowed. We don’t think that the share price deserves the beating it has been taking, so we’re willing to hold on to it for a while longer – but our patience isn’t infinite.
Things wouldn’t be so bad if Anhui Conch were our only dud, but on July 24, we made the ill-fated purchase of 100 shares of Hubei Guangji Pharmaceutical (000952), a major riboflavin producer. A 5-6% one-day rise the following week had us thinking we’d picked a winner, but the market had other ideas. Hubei Guangji was down 42% on August 18.
Our least-bad performer continued to be Industrial and Commercial Bank of China (601398), down a mere 10.78%.
We’re still looking for the market to rebound, but we might have to start breaking some habits.
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