July 23, 2018

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Gold Readies for Another Upsurge

Gold Surge

The gold price seems to have been slowly but relentlessly sliding since it peaked at $1,920 in September 2011. This has been the strongest of the four corrections in the soaring bull market that began 12 years ago, with a fall of about 13 per cent. [Read more…]

Thirst for Gold

Gold stocks

Gold stocks

According to Tyler Durden, writing in Zero Hedge, analysis suggests that China is buying almost 1,000 tons of gold a year and is well on the way to achieving the target admitted by a State Council adviser in December 2009 of 6,000 tons in foreign reserves within three to five years, and perhaps 8,000 to 10,000 in eight to ten years. [Read more…]

Under-exploited assets

Global political power, under-exploited assets

China Industry

China Industry

For both China and Europe, there are only strategic opportunities. A much closer partnership is clearly the route to take. [Read more…]

New East-West Alliance

China Exports

China Exports

China seems to be accumulating most of its additional foreign trade surpluses in euros, rather than dollars. But there could be more behind this policy than asset diversification, or support for Europe’s struggling economy – which takes 18 per cent of China’s exports, more than does the US. [Read more…]

Why the shares are neglected

Why Chinese Shares are Neglected

Why Chinese Shares are Neglected


International investors generally have very low holdings of Chinese stocks.

One reason is that the huge domestic market is largely closed to foreign investors, and completely closed to individual investors. The only avenues open to us are shares of Chinese companies listed outside the country (mainly in Hong Kong), depositary receipts of such firms listed overseas, or foreign multinationals whose profits are geared to business with China. [Read more…]

Bad Guys Check-list

CHECK-LIST FOR THE BAD GUYS

China Investment

China Investment

If you are worried about investing in Chinese companies because of the risks of corporate crime, here are things to look out for, according to Violet Ho, Greater China MD of global risk consulting company Kroll:

  • The first warning sign would be familiar to investors around the world: If it is too good to be true, then it probably is. Look for margins well above industry norms, rapid asset acquisitions after listing, related-party transactions.
  • Most common fraud is using shell companies to process deals (often set up by key persons’ family members or friends). The shell company is injected into the supply chain and used to create bogus revenues. This is very easy to fake, especially with services, as only people in the management team can say if they actually received services.
  • While all sectors may contain companies which commit fraud, those where the supply chain has multiple entry points, particularly where the upstream is farmers or plantations, are most prone. A large supplier base transacting without formal contracts or receipts means you cannot cross-check with reported financials and thus risk increases. This is also true for companies where revenue comes from sales of things you cannot see (virtual businesses).
  • Don’t trust all-clears by auditors. If the fraud is perpetrated through collusion of multiple parties, both inside and outside the organization, it will be very hard for the auditor to detect.
  • Compare statutory government filings with public disclosures. It is common practice for Chinese companies to under-report revenue to the local government by booking expenses in special ways to avoid taxes. This indicates they are corrupt on some level. And there’s the risk they get found out.

Finally, I cherish this insight by FT commentator John Plender on accounting practice in Chinese business. He says family entrepreneurs tend to keep four sets of books:

  • One for shareholders (lousy profits);
  • One for the tax man (just over break-even);
  • One for the bank providing credit (great profits);
  • One for themselves (reality).

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Thirdly, what matters to most investors is capital growth. Historic share prices are a matter of public record, so cannot be manipulated. If corruption has been a problem, it means capital growth would have been higher without it. But I would not complain about the average five-year share price increase for those same Hong Kong-listed firms — 164 per cent.

Moving beyond the negatives, which are far less than they are often said to be, what should we now expect?

  • Official policy is likely to continue moving cautiously towards easing.

This is a politically difficult time because of the periodic mass changeover in important government positions throughout the country. Retiring officials still in power won’t want to make the mistake of easing up too soon on squeezing property speculation and damping down inflation. On the other hand, they wouldn’t want to see too much of a slowdown, which would cost them serious loss of reputation.

So… steady as she goes, with the outgoing leadership probably declaring “victory” in the second or third quarters, ahead of the October changeover.

  • If there is an economic setback, China “has plenty of ammunition in its monetary policy arsenal… to deploy,” says former chairman of Morgan Stanley Asia Stephen Roach.
  • With valuations now very attractive — an average forecast earnings-per-share ratio of not much above nine times – and a reduced downside risk to earnings growth, Deutsche Bank says it has “a very positive outlook for China’s equity markets.”

Of course, there is historic evidence that strong investment returns don’t correlate with strong economic growth. But rules based on history have a way of collapsing the moment they become well-known and investors base their decisions on them.

In this difficult new world of exploding public debt, what Roach describes as “untested and dubious” central bank policies, and mature economies struggling with poor growth and growing political disaffection, it surely makes sense to choose an economy growing at 8 per cent a year above those struggling to achieve 2 per cent? With retail sales, even in a slowdown, growing at 14 per cent a year? And to invest in companies whose earnings have been growing strongly, while most of those listed in the West haven’t done better than recover lost ground?

CopyRight – OnTarget 2012 by Martin Spring

China, a Mid-Year Buying Opportunity

China: a Mid-Year Buying Opportunity

China Stock Market

China Stock Market

Why has the Chinese stock market performed so poorly over the past year when Wall Street has done well? Is the situation about to change? [Read more…]

China’s Southeast Asia Integration Vision

China’s Vision for Integration with Southeast Asia

Southeast Asia Vision

Southeast Asia Vision

The Thailand and Chinese governments are about to sign a “memorandum of understanding” that will lead to the building of an important new rail line and within three years allow introduction of high-speed train services between the Chinese city of Kunming and Bangkok via Vientiane in Laos.

Currently there is no rail connection between China and most of Southeast Asia. The new line, whose construction will begin soon, will be the first phase of an ambitious Chinese plan to give its economy fast, high-capacity rail access to the region, using Bangkok as the hub of a major new system.

Later stages will replace the obsolete narrow-gauge track that currently links Bangkok to Singapore via Malaysia with a standard-gauge connection carrying trains running at up to 350 kms an hour. Then will come new rail routes to Bangkok through Vietnam and Cambodia to the east and through Burma to the west.

The new network, financed by cheap Chinese government money and equipped by China’s fast-expanding railway equipment industry, will not only open up the region to Chinese factories, but also give Southeast Asian economies much easier access to Chinese markets for their exports of agricultural commodities, natural resources and manufactures, and encourage inbound tourism.

The Chinese vision is even grander. The Beijing government wants improved access to Europe through high-capacity over-ground access to ports on the Indian Ocean and planned rail links from Northern China through Central Asia and Russia.

Within a few years it could take as little time as two days to travel in comfort by train on an unbroken journey all the way from London to Singapore.

With trade among Asian countries growing twice as fast as their trade with the rest of the world, there is fast-growing need for improved intro-Asian transportation links.

The Economist recently reported: “New roads, railways and pipelines are crisscrossing continental Asia… Railways reflect the boldest ambitions.”

China seems to have chosen Thailand as its hub for expanding transportation infrastructure in Southeast Asia, not only in rail. It is in advanced negotiation with the Thai government about wider co-operation encompassing road systems, ports and offshore oil/gas exploration.

It’s planned to close missing links in the region’s rail network such as Saigon to Phnom Penh in the east and Bangkok to Rangoon in the west.

Worldwide, there is booming growth in railways, driven by upgrading to high-speed lines, worsening congestion on highways, environmental considerations, and the improving competitiveness of rail because of low marginal costs versus the high fuel costs of road transportation.

At the heart of this boom is China, which now accounts for half global demand for railway equipment, with an additional 26,000 kms of track planned for completion over the next few years. Its high-speed railways are already the world’s fastest and longest.

Although the long-established equipment manufacturers of Europe, Japan and North America still lead in railway technology and quality, their Chinese rivals are fast closing the gap, improving on the designs they copied from foreign suppliers, and competing aggressively on price – not only in China itself, but also elsewhere in Asia, in Latin America, and even in Europe.

They enjoy the privilege of virtually unlimited access to cheap state finance, and in emerging economies are often prepared to do barter deals, taking payment in natural resources.

To strengthen China’s position, its government is considering a merger of its two dominant state-owned railway equipment manufacturers, China North  and China South Locomotive & Rolling Stock corporations, CNR and CSR.

However, unfortunately this booming sector doesn’t seem to offer much in the way of opportunities for individual investors.

China Railway Group and China Railway Construction are both listed in Hong Kong. Bombardier, listed in Toronto, has both railway and aircraft divisions. None looks particularly attractive to me.

CopyRight – OnTarget January 2011 by Martin Spring

Here’s the new global leader

Chinese Stock markets

Chinese Stock markets

Meanwhile, the stock markets that we ought to watch – the new global leaders – are those of China. After the worldwide collapse in equity values, they were the ones first to bottom and to lead the global recovery – by six months. Are they the early indicators of a coming correction in other major markets?

[Read more…]

Weakness now is an opportunity to buy

Global Crisis

Global Crisis

continued from > Still too dependent on exports and investment

How ironic that the near-death experience of the world economy in 2008 originated in the US, the country that promoted aggressively the merits of private enterprise, free trade and using market forces to discipline behaviour, yet has now responded with the opposite policies of huge public subsidies, regulation and near-total state provision of mortgage finance!

While America looks increasingly like socialist, sclerotic Europe, China becomes more like the US in its 19th century capitalist heyday. It is, Bolton says, “the investment opportunity of the next decade.” [Read more…]