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VC Ramesh, who operates the blog, is an entrepreneur and investor / trader with a keen interest in China Play Stocks. He is the author of the eBook "China Play Stocks" which is available through major online booksellers. He describes "China Play" as one... More
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  • Evergrande profits from diversification into 2nd tier cities
    Apparently, Evergrande Real Estate Group's (HK:3333) strategy of diversifying away from main cities into 2nd and 3rd tier Chinese cities is paying off. Evergrande is the 2nd largest Chinese (mainland) developer behind China Vanke in terms of sales. Evergrande's profit soared as the Chinese government crackdown on property speculation in the main cities has not affected the 2nd tier cities. In those smaller cities, the buyers are end-users and owners, instead of speculators. The stock looks inexpensive though the P/E as listed by the major finance websites seems to be all over the place. Why can't these websites get the number correct? Bloomberg says current P/E is 6. Google Finance says it is 18. Yahoo says forward P/E is 7. Whatever. But it does seem as though Evergrande is a safe stock just because of its size. It has staying power. It is more or less at its IPO price of HK$4 when it came public Nov. 2009. It slumped in 2010, but has recovered recently. I am a buyer. Here are some excerpts from the Bloomberg report on its earnings:
    Evergrande Real Estate Group Ltd. (3333), China’s second-biggest developer by sales volume, posted a sevenfold increase in 2010 profit as the company diversified away from major cities. Net income climbed to 7.6 billion yuan ($1.2 billion), or 0.5 yuan a share, from 1.1 billion yuan, or 0.07 yuan a year a year earlier. Earnings from its so-called core business rose 19-fold to 5.5 billion yuan. Evergrande’s contracted sales rose 40 percent to 7.9 million square meters (85 million square feet). It had 112 projects in 62 cities by the end of last year, with 95 percent of those developments in so-called second- and third- tier cities. Evergrande plans a 39 percent increase in contracted sales this year to 70 billion yuan. The WSJ report excerpts: The developer said it will continue to build up its land reserves in third-tier cities. As of Dec. 31, the group had total land reserves of about 96 million square meters distributed among 62 cities in China, including 21 second-tier cities and 39 third-tier cities.
    So, if you take the numbers and do the math: 2010 core earnings is 5.5 billion yuan = HK$6.5B. Market-cap for HK:3333 is roughly HK$60B. So, the trailing P/E is about 9.2.
    Mar 29 1:01 PM | Link | Comment!
  • New Book: China Play Stocks
    New Book: China Play Stocks

    This new book, China Play Stocks,  is aimed at individual investors who are interested in investing in stocks that enables them to profit from China's rise as an economic super-power.

    There are three main ways to play China. Investing in Chinese companies is the most direct and obvious one. Investing in commodities and commodity producers is the second route given China's ravenous demand for commodities; in other words, "buy what China buys". Investing in non-commodity multinational companies with exposure to China is the third; I use the qualifier "non-commodity" since multinationals (globals) that mine or produce commodities are covered in the second category. In this book, I cover all three methods in sequence. 

    There is overlap between the categories. In particular, I discuss Chinese commodity producers and miners, especially the rare earths and other precious / valuable metals miners. In rare earths, Chinese miners have a virtual monopoly on global (not just Chinese) demand. Many of these Chinese miner stocks are only available as A-shares; I discuss how non-Chinese citizens can access these through funds.

    In all three cases, you can either pick stocks individually or invest in stock funds. Stock funds are either passively managed index funds or actively managed funds. China play mutual funds are mostly actively managed and hence more expensive. Closed-end funds (CEFs) are actively managed funds that trade like stocks; they also have high expense ratios. Exchange-traded funds (ETFs) are, for the most part, passively managed, and relatively less expensive; they trade like stocks but are like index mutual funds, so they are quite popular. I cover funds as well as stocks.

    I discuss and compare the different investment plays, and the complex dynamics involved in selecting an investment option. For example, consider Caterpillar which is an example of a commodity play since it manufacturers mining and construction equipment. It benefits directly from China since it sells to construction and mining firms in the Chinese market. It also sells to Latin American miners and commodity producers, and therefore benefits indirectly from the Latin American commodity exports to China. However, Caterpillar also faces increasing competition from low-cost Chinese manufacturers (like Sany Heavy Industry Co.) who, in some cases, are current / former joint-venture partners that acquired know-how and technology from Caterpillar. These Chinese manufacturers are also increasingly exporting equipment to Latin America thereby posing a long-term threat to Caterpillar. So, some of these investment plays come with an "expiry date" which might be sooner than you think.

    I also discuss the dynamics of the declining U.S. dollar and the rising Chinese currency (the Renminbi, a.k.a., the Yuan). Since the Yuan is not freely convertible, direct plays are mostly limited to currency funds (ETFs) that use non-deliverable forward contracts, swaps or other derivatives to capture the appreciation of the Yuan. Other indirect ways include Chinese real-estate developers and Chinese consumer stocks such as airlines and utilities. I also explain what Contango is, and its effect on commodity futures-based ETFs.

    This is a hands-on nuts-and-bolts "how-to" type investing manual, based on my personal experience and research spanning nearly a decade. No knowledge of economics, finance, or accounting is assumed or needed. Some basic knowledge of stock market investing, and some exposure to valuation metrics, such as price-to-earnings (P/E) for stocks, and expense ratios for funds is sufficient. I cover stocks and funds traded in the U.S. and in Hong Kong, including Pink Sheets / OTC stocks and ADRs. I also provide tips on which brokerages to use for trading in the U.S. and in Hong Kong. The stocks and funds I discuss are accessible to U.S. citizens and residents; however, many of these, especially those traded in Hong Kong, are accessible to citizens of other countries as well.

    See the book home page for links to online retailers like Amazon.
    Mar 29 6:58 AM | Link | Comment!
  • The mystery of the missing Chinese luxury buyer
     All the major luxury goods makers, like LVMH, have been reporting record sales, thanks mainly to their stores in China. Yet, this FT article says that the author saw very little traffic in these luxury goods stores. Here goes: An even bigger puzzle were the luxury shops. In Beijing and Shanghai there are almost as many Louis Vuitton and Chanel stores as there are Starbucks and Costas. Everyone knows that in China there is the greatest luxury boom the world has ever seen. But when I walked past these stores, the only signs of life were squadrons of eager shop assistants. Westerners don’t shop there, as the stuff is much cheaper at home. But I didn’t see a single Chinese customer in any of the stores either. Are the shops a front for something? Or will some of the big luxury companies soon admit – like Mattel did recently with its Barbie store – that they dashed into China too hastily? What’s at the bottom of it all, I asked our Shanghai correspondent. She shrugged. The better she got to know China, she said, the less she expected to be able to get to the bottom of anything.
    If she is right, and there is little traffic, then how can we explain these record earnings growth in China. Perhaps this FT comment offers a possible answer:  
    the average customer in any of his Chinese stores would be spending considerably more money per visit than their European counterpart (setting aside, of course, the even more considerable income French Hermès stores derive from their – often Asian – tourist clientele), thus compensating for the fact that they are visiting Hermès much less frequently. In other words, whereas for every 10 local visitors to its European stores, Hermès could hope to sell a belt or a scarf, a Chinese Hermès customer on a single visit would buy not only the scarf, but also the suit and the trunk that go with the accessories. After accounting for their lower running costs, Hermès stores in China, he said, were actually quite profitable.

    But still, that is somehow unsatisfactory. I was thinking that these stores are overflowing with the newly rich Chinese. Mystery, indeed.
    Tags: luxury, retail
    Mar 27 12:19 AM | Link | Comment!
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  • Advanced Battery Technologies $ABAT.PK ABAT crashes. SA article calls company questions company operations, earnings. Another China fraud?
    Mar 31, 2011
  • CNOOC CEO $CEO on a tear. New all-time highs every day. Oil play and China play. Relatively limited refining exposure, compared to PTR SNP
    Mar 31, 2011
  • XIN's sin? What ails XIN? Xinyuan Real Estate. Looks cheap. But stock keeps sinking. Is it a fraud like some other China small-caps? Fishy.
    Mar 31, 2011
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