Beijing has made yet another pledge to clean up the environment. The State Council said on its website Thursday that it will halt new approvals on coal-fired power plants on the country’s eastern seaboard in an effort to rein in the naughty polluters. The government would like to bring down energy produced by coal to 65% of power output by 2017, down from 70% this year. At the same time it wants to bolster wind and solar output to 13% in that time frame from the current 9%. Chinese coal prices fell to a four-year low this summer, dragging down with it shares at China Shenhua Energy (601088.SHA, 1088.HKG) and China Coal Energy (601898.SHA, 1898.HKG). Nevertheless, analysts are still upbeat on those companies. “This is part of a long-term plan to reduce the use of coal … but there are a lot of uncertainties related to this,” said Helen Lau, a senior commodities analyst at UOB Kay Hian in Hong Kong. For one, green energy is expensive. If China continues to experience an economic slowdown, burning coal will look much more attractive. Also, the real effects of the policy won’t be felt for more than a year. With share prices down and potential for an increase in the price of coal, the polluters are a good buy – whether they’ve been naughty or nice to the environment.
Know which bank stocks to bank on
Chinese banks are a curious stock to bet on. The four biggest lenders in the country – Industrial and Commercial Bank of China (601398.SHA, 1398.HKG), Bank of China (601988.SHA, 3988.HKG), China Construction Bank (601939.SHA, 0939.HKG) and Agricultural Bank of China (601288.SHA, 1288.HKG) – posted record profits for the second quarter of US$35.2 billion (RMB216 billion). That’s up 15% year-on-year. Not bad for lenders operating in a country with huge debt piles, bad loans and a slowing GDP. While income is rosy, investors are not quite sure: An index in Hong Kong that tracks mainland financial firms listed in the city is down 4.2% in 2013, while the benchmark Hang Seng Index has risen 1.4%. At a banking forum in Hong Kong this week Ma Weihua, former president of China Merchants Bank and current chairman of Wing Lung Bank, noted three key challenges for mainland lenders: Slowing economy; challenges from stakeholders and regulators; and changing customer needs. When picking banking stocks at this time investors should consider the forthcoming results of a local government debt audit and financial reform that could attack the cozy margins lenders have had. Xingyu Chen, an analyst at Phillip Securities in Shanghai, says that while financial reforms might be difficult in the short term, they are a longer term “positive.” Meanwhile, unless there is a huge surprise, local government debt is a manageable risk for the next 5-10 years. He suggests the bigger lenders for long-term investments, while active investors should look to small banks.
Apple misses China’s “sweet spot”
By now it’s clear that not all went as planned between Apple (APPL.NASDAQ) and China Mobile (CHL.NYSE, 0941.HKG). Apple’s iPhone 5C, the much-talked-about emerging markets smart device, launched in Beijing on Wednesday but no deal between the two companies was announced. The phone, at more than US$700, isn’t cheap buy any stretch of the word either. However, the Ministry of Industry and Information Technology has issued Apple a license to sell the phone and another model on China Mobile’s 4G network, which could get an operational green light at the end of the year. This is good news. The ministry has positioned China Mobile to lurch in front of the other two mobile operators for 4G services. Investors will prick up their ears for mention of a solid deal. The bad news is the price of the 5C, which sent the company’s share price falling in New York on Wednesday. It’s far above China’s “sweet spot” for smartphone pricing, which tops out at about US$160. It’s in this much lower pricing range that China is set to purchase bundles of devices this year. While a China Mobile tie-up will be good for the company, investors shouldn’t expect Apple to really cash in on the biggest segment of growth in the China market.
Tenwow International Holdings will list in Hong Kong next Tuesday. The mainland food and beverage producer is entering into a tough market, where appetite for Chinese stocks has been subdued. Rumors abound on offerings from other, bigger firms, but nothing substantial at present.