The Red Dragon Fund launched in August 2005 and is run by an industry professional. The Capitalist Roader Fund launched in June 2008 and is run by CHINA ECONOMIC REVIEW’S editorial team. Which one will prevail?
Red Dragon Fund
China Unicom (600050) was suspended from trading on May 23 as the reconstruction of the telecom industry restructuring began to kick in. (For more details see page 18) One of our reasons for buying the stock was that we thought China Unicom would benefit from the changes.
When trading resumed on June 3, China Unicom opened at RMB10.71, up 10%. This would have been a good time to sell but the mutual funds moved first. Heavy selling saw China Unicom end the day at RMB9.59, down by 1.54%.
Although we missed this particular window of opportunity, we believe there will be more down the line. China Unicom is now undervalued.
As for PetroChina (601857), we are keen to get rid of it, but only at the right price. International crude oil prices are rising but PetroChina is unable to pass this on to the consumer due to fuel price caps. There was talk of relaxation in the pricing system but reining in inflation is more of a priority for Beijing right now.
Capitalist Roader Fund
We started our RMB10,000 Capitalist Roader Fund with two buys. First we got one lot of Anhui Conch Cement (600585) at RMB55.97 a share on June 5. We had already been looking for solid infrastructure plays, but – unfortunately – the Sichuan earthquake prompted us to really pay attention to cement companies.
Anhui Conch is China’s top cement producer and was already expanding its business in western China before the quake. Jun Ma, chief Greater China economist at Deutsche Bank, put out an excellent research note recently estimating that post-quake reconstruction should take three years and require 78 million tons of cement, or a 49% percentage point increase in demand. Anhui Conch followed the markets down last week, but have risen slightly at time of writing to RMB48.48.
Gritting our teeth, we made another buy on June 18, betting that the index would rebound. We wanted an index-heavy stock and opted for Industrial and Commercial Bank of China (601398), at RMB5.10. It has risen modestly at the time of writing.
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