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I start to invest in China share market when I was 15 years old. Nowadays, I have been in the market for more than ten years. My strategy is M&A arbitrage and also have tried finding low P/E,small cap stocks. I have studied in United States for Master of Finance degree. During those days, I... More
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  • New Value King JonJeE-HigTech


    Product upgrades, capacity release, channel expansion to promote the healthy development of the company.


    1. Condiment industry. Product Upgrades+ Capacity Release+ Channel Expansion= Core Growth. In the first half of 2013, condiment as its main business has a revenue of 960 million RMB, 87.2% of the total revenue. Condiment provides net income of 97 million RMB, about 110% of the total net income. The company is an overall condiment company. We expect the whole year condiment revenue will reach to 200 or even 210 million RMB. Condiment business will grow 25% next year because of the product upgrades, capacity release and channel expansion.

    Product Upgrades: Aiming at high-end market and improving the profit margin. Company takes on dual-strategy to two different sauce brands. Chubang is the high-end brand. Meiweixian is the low-end brand. Up till now, Chuang has total revenue of 90% of the sauce income, which means its products are market favorites. The strategy is according to the trend in the industry. Its super high end pure brewing products are priced at 17-18 RMB and enjoy a very high profit margin. We expect the scale effect will lead to further marginal cost cut down. As more and more high end products come out, the profit margin will keep on rising.

    Capacity Release: 80 thousand tons will be released in Zhongshan and Yangxi in the first half of next year, which makes the whole capacity to 430 thousand tons.

    In 2013, company has already have 350 thousand tons of capacity. In the first half of 2014, Zhongshan will be able to release the rest 50 thousand tons of capacity. Meanwhile, Yangxi will start to release the first 30 thousand tons. The total capacity will reach to 430 thousand tons. We expect that after 2018 the capacity of sauce will be at 600 thousand tons. Yangxi is now experiencing high cost but low income. The system has just gone through its initiation. We think that from 2014 to 2017 the profit margin will go through a U-shape curve. But after that period, the profit margin will be higher than Zhongshan for about 30%.

    Channel Expansion: Develop the 1st-Tier market, Cultivate the 2nd-Tier market and Extend to the 3rd-Tier market, to expand into the dining industry and KA channel.

    The 1st-Tier market is those comparably developed market in Canton. The 2nd-Tier market is those markets that company put much emphasis on, such as Zhejiang, Hainan, Guangxi, Fujian and etc. The 3rd-Tier market is those market needs develop, such as northeastern of China and northern China. We expect the revenue in those major areas, including 1st and 2nd Tier market, will grow by 20%. The revenue, however, in northeastern of China and northern China will grow by 30%, in some places even exceeding 40%. Besides those traditional channel like supermarket and food market, company is planning to expand to dinning industry and KA channel. Company expects that it will take for five years for company to be the dominant participant in the dining and KA channel.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: CHI, CHII, CHU, CHA, CHIA, China, Value, Equity
    Jan 02 11:30 AM | Link | Comment!
  • Addressing Major Fixed Income Problems In Beijing

    Addressing Major Fixed Income Problems in Beijing

    Q: When will the monetary policy adjustment begin?

    A: The monetary policy will continue tight in the first quarter of next year. The interest rate will stay at a high level. However, the turning point may come at the second or the third quarter because of the slowdown of economy growth, the increasing financial system risks or the impact of global economy. PBOC may change its monetary policy because of those. If the inflation rate in the second quarter is pretty high, there will only be a small adjustment, and the price of capital will remain high. If there is a significant slowdown in the third quarter, which is the result of structural adjustment, the monetary policy may have a great change. Risk free rate may drop down. There is little chance that PBOC would significantly change the benchmark rate.

    Q: How about next year's foreign capital inflow?

    A: First of all, whether there is inflow depends on domestic economy not other countries'. If domestic economy keeps strong, the inflow will not change. Second, from the point of PBOC, to realize the globalization of RMB, PBOC should stabilize and appreciate RMB. RMB is expected to be appreciated next year. Third, the interest rate arbitrage has been there for a while and will keep on. Although the tapering has begun, the arbitrage opportunity is still very attractive. Fourth, PBOC keeps a reserve of 366 billion USD. Even if there is a big turbulence in the forex market, central bank will have the ability to keep RMB stable. In a word , the trend is still foreign capital inflow, but at a low pace.

    Q: How about next year's inflation?

    A: We think the inflation next year is more like this year, hard to be so high. First, we think that the growth power of next year is still not strong. Money supply is slowing. We should not overestimate the inflation. Second, because of the stable United States economy growth, USD is expected to be strong. Commodity price will be lower. There is little chance of imported inflation. Third, because the large supply of livestock, the price of livestock will not increase much. We think next year's inflation will keep at the same rate as this year, around 2.7%. The second quarter will go to the highest point.

    Q: Which rate will become the benchmark rate?

    A: As the advance of interest rate marketization, the market is finding an anchor. When pricing other financial assets, participants should just remember to add a certain risk premium above the anchor. From now on, there are three existing candidates.

    • Shibor

    The introduction of the interbank deposit further accelerates the formation of China's benchmark rate. Long been marginalized Shibor rates has become the darling of the financial markets. But Shibor rates still have some imperfections. The periods only limit to a year. The trading volume is very small. Although the introduction of NCD will help to form a longer term yield curve, the NCD still needs time to be popular and marketable.

    • LPR(Loan Prime Rate)

    National Inter-bank Funding Center starts to public LPR at 25th October. According to the quote of each bank, excluding the highest and the lowest one, NIFC calculates the value in a weight averaged manner and gets the average loan benchmark interest rate on 11:30 A.M. Until now, NIFC only provide one-year interest rate.

    • Treasury Yield Curve

    At the Third Plenum which is first proposed is that "the Treasury yield curve reflects a sound relationship between market supply and demand". The government has the intention to make treasury yield curve as the financial market benchmark. However, the situation that major participants of treasury market are those commercial banks and the structural change of banks' balance sheet makes treasury less representative. That is why treasury yield curve is not a shift lady for the market. Nowadays, the treasury yield curve has several shortcomings. The first is the insufficient of short term products and discrete publication of major products. The second is that banks and market have two different supervision systems. The chance for arbitrage is low, which cause one product has different prices. The third is that the volume of treasury is not sufficient. Investors are not educated for the treasury market.

    PBOC has tried hard to put forward the interest rate marketization. However, the above three all have its own drawbacks. It is hard to guess which one will finally be the benchmark.

    Q: As a traditional settling period, will the first quarter be the golden period?

    A: For the first quarter of next year, we are cautiously optimistic that the bond investment opportunities are weaker compared to previous years. According to estimated commercial bank funding costs {= (current year periodic interest rate +1) / 2 * deposits accounted + (1M Shibor +3 M Shibor) / 2 * +3 month interbank liabilities accounting for financial products Yield * guaranteed wealth management products scale the current proportion of about 2.63%}, compared to December 2012 increased by 80 BP, which lifted the deposit costs 52 BP. If we consider off-balance sheet financial factors, the cost of capital rises more sharply. Under such a high cost of capital, banks have no incentive to take on more debt. On the other hand , as the settling of the main insurance premiums traditional quarter is the fastest growing fund , commonly known as a good start , but with all kinds of high-yield finance , underinsured attractive , so the first quarter of next year might be a good start insurers is very low , even with new money , according to this year's 85% investment ideas will be configured in other investment ( trust , loan schemes , etc.) , and therefore also affect the size of a quarter with debt . Big banks current configuration does not demand as in previous years. Therefore, our expectation for the first quarter of next year bond market is cautiously optimistic.

    Q: Is there any upside space for the yield curve?

    A: We believe the next 1-2 quarters, the interest rate yields will remain now that stalemate, that there is no room for upside, there is no dropping conditions. First, since June this year, resulting in rising yields is mainly due to: the interest rate market to accelerate, neutral tight monetary policy, bank debt maturity mismatches lead to reduced investment scale, platform and financing platform for an unlimited amount of financing, which four dominant factor has been fully reflected in the second half of the yield curve, is expected no recent precipitating factors leading to greater yields rose to 5% and can be maintained at such a high level. Second, with the whole social financing costs up, bond yields will be the central uplift, and therefore yields dropping to below 4% is also unlikely. Therefore, we believe that in the case of more than a few factors have not changed, the yield would be stalled for some time.

    Q: Is there any chance that NCD will replace CD?

    A: Interbank deposit on the duration and nature of the liability similar to banks, both in itself there are some substitution effect. Interbank deposit are standardized products that can be mobile, and can pledge to reduce friction and funding liquidity premium, interbank deposit interest rates will be lower than its peers store, which will be expected to form a significant diversion to banks. But to banks in meeting the individual needs of organizations have the advantage. Most of the business to banks from the branch level and small stock lines, lines to banks under the supervision of the central bank is also a powerful weapon to bypass. The interbank deposit certificate issued by the head office, and is currently available only in the 10 pilot institutions, the market is starting among the NCD over a longer period of time and the line will remain the same below to banks coexist.

    Q: How about credit risk next year?

    A: We believe that credit risk next year mainly refinancing risk. With limited funding and a broad spectrum of interbank interest rates to rise next year, the financing environment worsened, the larger the amount of the bond maturity. Meanwhile, next year is still facing a "capacity to" issue; we recommend that the steel, nonferrous metals, coal and other industrial sectors of the private debt should be circumvented. There are some technical debt default risks. However, the financial institutions associated with it will be supported to avoid breach of the industry, "the first single," because such events both for the enterprise itself or related financial institutions are big negative impact. Therefore, the credit risk arise at some point will be resolved. However, if the cumulative risk more, do not rule into a solvency risk. From an economic point of view the situation next year, or two quarters of next year the economy was flat with the fourth quarter of this year, the third and fourth quarter of next year there are downside risks to the economy, but there is a bottom line growth, and therefore will not be much downside. So in this context, a major outbreak of the credit risk is unlikely, but does not rule out individual credit risk.

    Q: How about the supply of municipal bond?

    A: The first half of next year the municipal bonds relatively large supply. Since August this year, the NDRC approval for the city to vote bonds loose, led directly to the second half of the municipal bond supply is large, but according to our survey, although part of the issuer has to get approval, but because of funding constraints, lack of demand and revenue considerations higher rates of other reasons have chosen to defer part of the issue or issue. According to the policy provisions, approvals valid for one year or less, but if the issue is not before the end of April will face up 2013 Annual Report and other issues. Therefore, expect to get approval of the existing city to vote bonds will be issued early in the first quarter or second quarter of next year. We are also concerned that, due to the "pledge of accounts receivable" and so many problems, NDRC approval is expected next year than this year tighter. In addition, next year will be the NDRC debt sustainability focus.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: bonds
    Dec 31 3:02 AM | Link | Comment!
  • Four Black Swans In 2014 China Market

    Article text goes here...

    Four Black Swans in 2014 China Market

    The attraction of macro economy lies in its non-linear and uncertainty. To better prevent us from those impossible events we'd better discuss them in advance.

    We think there may be four potential Black Swans:

    1. Accelerated inflow of foreign capital, which may change the status of domestic monetary supply and demand;
    2. PPI continues its deflation;
    3. The slowdown of U.S economy;
    4. Accelerated deflation of Yen, which may change the expectation of the whole economy.

    Domestics: Accelerated inflow of foreign capital

    The tapering has brought a second turning point of global liquidity. One important impact is that the capital flows to emerging market will be slowed down. In the first half of 2014, global macro asset allocation should still follow the logic of economic growth. In other words, international capital flows to China is determined by China's own economic growth in the first half. The greater risk lies in the second half. If U.S.'s core inflation comes as early as what we have expected, there will be a serious withdraw risk. In a word, under the situation of high leverage, economic growth and the need of capital while in transaction, the overall inflow of foreign capital will not change the problem of tight capital supply.

    Accelerated inflow of foreign capital, which may change the status of domestic monetary supply and demand.

    1. Economic growth changes into sustainable growth mode. Under the government's "promote transformation" and "maintain stability" idea, the economic growth in 2014 will be limited or slowed, improves in the relative stability of China's economic growth will weaken concerns. Meanwhile, the government-led economy reform changes from investment-based growth to focus on the extensive growth of the quality of sustainable development. Thus, the slowed economic growth does not mean a decline in corporate profits. Return on capital will shift to a more healthy recovery. The slowdown of economic growth might not have so much impact on foreign capital inflow.
    2. Tight liquidity creates arbitrage opportunities. From the attitude of the government and PBOC, 2014 domestic liquidity is likely to remain tight, and capital price will still be high. The tapering will bring about a second turning point of the global liquidity. Meanwhile, the political need of RMB globalization will cause RMB appreciation. This will cause an interest arbitrage opportunity.
    3. The opening of capital account will cause substantial inflow of foreign capital. Third Plenum of Eighteen has greatly improved the expectation of foreign investor to the domestic market and brought in a large amount of capital inflow. However, the FDI data showed that those inflow are more inclined to short-term arbitrage than long-term investment because of the doubts about the reform. However, from the recent moves taken by the government and PBOC, the reform might be faster than market expectation. If some reform policies are introduced next year, the further inflows might occur.

    In a word, the future possible inflow of foreign capital might ease the problem of debt risk and cleared the road for China's economy reform.

    Domestics: PPI continues its deflation

    The surplus of 2013 and the reduction of inventory will led to a continued deflation of PPI. However, as the inventory level goes down to 1999-2003' reduction of inventory medium level, the continuously drop of price will be slowed. In a norm condition, PPI will be positive in the mid of 2014.

    Supply and demand factors resulted in PPI deflation continues

    1. Government to promote the transition to further suppress the traditional industrial needs. 2014 annual production overcapacity situation may be better than 2013, but capacity utilization is likely to remain at a low level. This means that when demand picks up may bring more supply, making PPI slow recovery. In addition, the government in "promoting transformation" of ideas, even though there are still appeals to the GDP, but its GDP pulling means may be little correlation with traditional industrial sectors of environmental protection, social security and so on. The initiative is likely to slow down investment in infrastructure-related spending. If this factor led to a sharp slowdown in investment-related industrial demand may lead to a larger proportion of the relevant industrial PPI be a second round of price declines.
    2. Global commodity prices face downward pressure. Inflection point of the second-order global liquidity to bring downward pressure on commodities, and a slowdown of growth and transformation of China's economic growth will weaken demand for copper and other commodities, resulting in further downside on global commodity prices pressure. Also, if the Fed from the middle of next year, "the initiative to withdraw" to "passive tightening" of the expected changes, could cause commodity prices to fall further. Meanwhile, negative factors such as oil, nonferrous metals, such as iron ore supply may also be commodity prices.

    United States: Deceleration again

    The basic judgment on the U.S. economy is "continuing to recover, but the potential growth rate of the economy has led to the ceiling, core inflation start early."

    Due to the current market expectations for the U.S. economy is high, so even if the U.S. economy downturn than we think, it will be a long-term asset allocation categories subvert the market direction is huge "black swan."

    1. The contribution of labor to economic growth or decline. U.S. labor force growth slowing, if the economic growth is split into labor, capital and TFP contribution, the contribution of labor to economic growth is weakening. Aging and declining population, the U.S. labor force participation rate also reflects the plight of the labor force.
    2. Structural unemployment could damage potential economic output. After the financial crisis, some people may be due to prolonged unemployment and the loss of the necessary labor skills, leading to rising structural unemployment, the economy's potential output has also been negatively affected. From the recruitment rate and unemployment data, there has been a significant structural unemployment. The result is an uplifting of the natural rate of unemployment, if not fully understand this point, it may lead to slow stimulus exit, causing inflation.
    3. Uncertainty remains financially. Although the budget agreement reached by the two parties to get through and some of the large probability eliminates uncertainty on fiscal spending, but the debt ceiling expires February 7, 2014 is not resolved, it is uncertain financially. Moreover, the specific spending may continue on a bipartisan wrangling.
    4. Shale gas revolution could not be like imagination. Shale gas revolution in the U.S. labor productivity has improved significantly the energy industry, has brought great advantages to the United States on energy, for promoting the recovery of the U.S. manufacturing sector is a major driving force. But the high cost of shale gas exploitation and the rapid decay to shale gas production has brought great uncertainty. Meanwhile, there is a huge political uncertainty shale gas exploration itself. If the exploration and development of shale gas weaker than market expectations, then it may affect the strength of the U.S. recovery.
    5. Recovery slower than expected QE exit may affect the rhythm. At current market expectations that the Fed may further cut each FOMC meeting on the scale of $ 10 billion purchase of bonds by the end of 2014, the end of QE. But if the U.S. recovery is slower than expected, could lead the Fed to exit the tempo slowed, QE is likely to drag completely finished in 2015.

    The more important question is that, if the U.S. economy has experienced three rounds of QE plus round OT after down again, it may cause the market began to question the effectiveness of QE. If the market began to question this issue, the overall global asset allocation categories are likely to change subversive appear. Over the past few years, substantial repair their balance sheets through QE economies (U.S., Japan, Britain, etc.) may be subject to abandonment, and early entry into the monetary tightening economies (Europe, Japan) there may be a substantial sought funds.

    Japan: Accelerated depreciation of the yen on the Japanese economy is expected to change again.

    Current expectations are for the Japanese market, in the "Abe economics" to stimulate its economy is finally showing the momentum of recovery, but the 2014 increase in the consumption tax to cast a shadow over the Japanese economy. Judging from the market, despite the recent depreciation of the yen signs appeared again, in dollar terms was significantly weaker than the Japanese stock market returns on the performance of one yen devaluation period, indicating that the market for the Japanese economy is expected to remain weak. Although Japanese consumption tax will affect hedge again allow the depreciation of the yen, but the overall efforts to pull the economy is limited, this is our basic judgment.

    Consumption tax is an excuse; depreciation of the yen is the core.

    1. Consumer concerns about high taxes. From 1997 to increase the consumption tax situation, in 2014 the consumption tax increase may jeopardize the economic recovery at risk. Japan's fiscal stimulus helped Japan's recovery, but also brought the budget deficit. One reason for the increase of the consumption tax to make up the deficit, but the government overcharged tax, a direct result of the private sector will be squeezed out and cut spending, in order to sustain economic growth before the government will increase spending (or increase monetary policy stimulation, which causes the depreciation of the yen), which will weaken the taxes to make up the deficit through the efforts of the efficiency of government spending unless significantly higher than the private sector (efficiency is high we do not discuss here). In short, the economic recovery has just established a hurry to raise taxes will bring great risk.
    2. Japan's economic performance since April shows that the current yen remains strong. BOJ quantify qualitative easing significantly stimulated double Japan's economy, it also brings a depreciation of the yen. However, the strong monetary policy stimulus, the yen exchange rate since April maintain a level of around 100, because of the pressure of the United States makes its continued depreciation of the Japanese did not, the specific operation in Japan by foreign exchange market operations to stabilize the exchange rate, thus lead to a net yen put on the market discounted. If the increase in the consumption tax reflects the significant negative effects, then we need more policy stimulus to stabilize the economy.

    From the beginning of the process of accelerated depreciation of the yen's point of view, once with the depreciation of the yen is expected to rise in systemic and views on the Japanese economy began to change, this black swan event, will result in:

    1. Capital flows into U.S. combined economies (such as China).
    2. Assets of Southeast Asian (Japanese manufacturing backyard) will be sought after.
    Dec 30 11:20 AM | Link | Comment!
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