Tuesday 10 July 2012

Jacob different views on China

Dear Friends, 

This blog is supposed to be a sharing views platform. I welcome all views and opinions so that we learn from each other. Recently I posted an article stating my opinion that China market may have reached its bottom. 

Below is a different view from Jacob, working in the financial industry, which I think has valuable points on being still bearish. I enjoyed it. Read on...


Dear Daniel,

Some reasons that china may not be bullish:

1) China government's data not reliable

2) PE is low, Russia's PE went as low as 4x earnings early this year

3) China government interference produced many zombie companies.
meaning companies owe the bank money, and could not pay up, but the government told the bank not to ask for money from their debtors (companies). these companies just could not be profitable, but staying alive, yet they are not subject to normal cleanup (bankruptcy)

4) energy consumption in China is low, suggesting things could be worse than reported. stockpiles of coal at their ports...

5) PMI contraction for 8 consecutive months
Maybe you are talking about different time frame ( 2,3 or 5 years)? bullish for china if you invest for how many years?

Besides, how would gain exposure to invest China? through US Stock exchange or SGX?

Thank you.

Daniel's points to sum it up:

I am optimistic that China may be bottoming soon because

1) Its interest rate has been declining, and 2 times in 1 month shows Wen Jia Bao's efforts not to put so much pressure on the economy anymore.  And I believe there may be more rate cuts to come soon.

2) There be a change in leadership soon in China. The last time I heard from Prof Chan Yan Chong is in September. I agreed with Prof Chan that once the leadership change, the new politicians will ramp up the economy and stock market to prove their leadership.

3) Stock market runs on confidence. And one way to inject confidence would be to have government policies to ramp up the economy again. China's PMI contraction I feel, means not much. Stock market runs on confidence, not so much on economy. Stock market is leading the economy, never the other way round, like what Mr Hu Li Yang suggests. 

And the government has already shown its willingness to relieve the pressure, meaning they might start to have pro-policies. This will inject confidence again.

Btw, how to play China play. We cant play the stocks. One way would be to invest in companies that depends on China economy. Like China properties related companies like Yanlord, or Capitaland or commodities and energy related companies. But pls study your companies carefully. Here I am just giving some examples.

Sorry, I am giving you a different angle not to confuse you, but to provoke your thoughts. You may have to do your own homework.

If you have other comments that you would like to share, just drop me an email rafflesbusiness@gmail.com and I would post it here for our audience.

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