Dragon Lady Consulting

US-listed Chinese Stocks: 2007 Summary and 2008 Outlook

Today is the last trading day for 2007. I would like to take this opportunity to give a small summary of 2007 and a quick outlook for 2008.

2007 obviously has been a very successful year for Chinese companies listed in the US. Approximately 30 Chinese companies went IPO in the US  in 2007. NYSE had over 40 IPOs this year; approximately half of them are Chinese companies. Chinese companies raised over $6B through IPOs and over $2B through private placement in 2007. In the secondary market, different index following US-listed Chinese stocks showed a 60%-100% increase from beginning of this year.

Looking at Chinese economy in 2008, Chinese government has taken more aggressive measures in the last few months for the purpose of preventing economy from overheating and curbing the rising inflation. Earlier this month, Chinese government increased the bank reserve requirement ratio by 100 bps to 14.5%. Last week, Chinese central bank raised its interest rate for the sixth time this year, and one year lending rate reaches nine year high at 7.47%. The government also widened the trading band for the Chinese currency Yuan. Yuan reached a record high of 7.3 Yuan per dollar yesterday, a 10% up sinceChina ended its peg with US dollar in July 2005. Only in this year, Yuan has increased 6.4% from beginning of the year, and expected to go up to 6.8 Yuan per dollar by the end of 2008. The Chinese government has also taken other approaches to tighten the domestic credit market and to absorb the access liquidity in the domestic market.

This tightened monetary policy and slowdowns in the US and Europe, will likely to affect the Chinese economy. For one thing, China will have to export less to the US  and  European market, and China is very dependent on its exports. Still, Chinese economy will continue to be driven by fixed asset investment and domestic consumption. ADB, Asian development bank, forecasted earlier this month that Chinese GDP growth in 2008 will be 10.5%, a slowing down from 11.4% in 2007, still a double digit growth. US GDP growth for 2008 was forecasted to be 2.4%

Among the US listed Chinese stocks, quite a few of them have had a good run this year. However, we believe, among the 270 US-listed Chinese companies, especially in our focused small cap universe, we can still find plenty of Chinese stocks which are undervalued based on their earnings potential. In addition, it is likely that we will continue to see private and public Chinese companies come to the US  to raise capital , as Chinese government tightens its credit market and as US  investors continue to show interest towards Chinese stocks.

The Dragon Lady

China raises interest rates- stocks advanced

12/21/2007

US-lsited Chinese stocks advanced yesterday. Among the reasons, first the US stock market was up overall, second China on Thurday announced it will raise one year deposit interest rate by 23bp to 4.14% and lending rate by 18bp to 7.47%. This is the sixth time this year Chinese central bank has raised interest rate. This, I belive, gave investors some sort of comfort that Chinese government is making effort to prevent the economy from overheating and to curb the rising inflation.

As to China' economic outlook for 2008, I believe the slowdowns in the US and Europe will affect Chinese economic growth to certain extent, mainly because China will have to export less to the US and European markets, and China is very dependent on its exports. But still, Chinese economy will continue to grow, driven by domestic consumption, fixed assets investment and urbanization. Last week, the ADB, Asian development bank cut Chinese GDP growth forecast next year to 10.5% from 11.4%; still a decent double-digit growth. US GDP growth was forecasted to be 2.4% next year.

One implication on Chinese companies listed in the US: I believe they probably will continue or increase their financing activities in the US market, as obviously, it has become more costly and difficult for them to borrow from domestic banks to support their growth.

-Dragon Lady

Online Ventures: Lessons from China

As a managing director at Mayfield Fund, Raj Kapoor has real experience investing in China's Internet businesses—and advice for others

It's not hard to see why we, as investors, continue to flock to China. It has more than 125 million Internet users, the country's gross domestic product is projected to exceed that of Germany by the end of 2006, and early-stage opportunities are abundant.
But investing in China is not without its challenges. I have seen this firsthand as a managing director at Mayfield Fund. Over the last year, Mayfield and its local partner, GSR Ventures, have invested in approximately eight companies in the Chinese wireless, Internet, and semiconductor sectors. Here are some lessons we have learned, particularly in my area of expertise, the Internet:

1. Opportunities exist, but are harder to find. The first wave of Internet investment in China, which created giants such as search engine Baidu, portal leader Sina, and instant messaging powerhouse Tencent QQ, is over. Finding another Web-related giant will take patience and often the right connections.

For instance, sports lotteries were an underground market in China until the government, seeking revenue and control over the industry, decided to make them a legitimate business. The government granted an online and mobile sports lottery license to startup SportsGG. Another startup, SMIT, holds one of the few licenses to provide digital security chips for encryption in televisions.

2. Hire a stellar CEO and management team. One of the biggest challenges for a company in China is hiring the management team. In the U.S. we almost take great management for granted because there are so many experienced managers here. In China, the Internet, and even capitalism, is relatively young, so finding talented executives is more difficult.

Posted by The Dragon Lady, See full article at BusinessWeek.

Behind China's Investment in Blackstone

Yes, Beijing has a master plan, but it's not a nefarious one to dominate the world. It's aimed at addressing China's own serious problems

The announcement that the Chinese government would invest $3 billion of its massive $1.2 trillion foreign reserves in the Blackstone Group has triggered hair-raising rumors of China's "real reason" for doing so, speculations that expose American naiveté more than Chinese perfidy. Most center on a darkly imagined Chinese "master plan," if not to dominate the world (quite yet), at least to control foreign assets in an insatiable desire to expand. China does indeed have a master plan, but it is not this.

This year, no major matter of Chinese policy can be understood outside the context of the Seventeenth National Congress of the Chinese Communist Party, scheduled for the fall. Held every five years, Party Congresses are the events at which senior leaders set the political agenda and reshuffle the lineup of current and future leaders. Social stability is critical to the success of these events, since social unrest could disrupt carefully nurtured plans for political transition, consolidation, and succession. That's why we now see more control over the media. This is also why China eschews rapid appreciation of the yuan, which could throw millions out of work and on to the streets.

Posted by The Dragon Lady, See full article at BusinessWeek.

China will form world's biggest investment company

Beijing to form investment company to run huge forex reserves
Beijing is to create one of the world's biggest investing companies, with possible ramifications for global stock, bond and commodities markets, and might also affect how the US finances its huge budget deficits.

Chinese Finance Minister Jin Renqing said on Friday in Beijing on the sidelines of the ongoing National People's Congress session, that Beijing is trying to make more profitable use of its $1 trillion in foreign currency reserves. It is believed that most of the reserves are now parked in safe, but relatively low-yielding US Treasury securities and other dollar-denominated assets.

"We can achieve more profit from (wiser) investments (of the reserves)," Jin said at a news conference. "We are now in the stage of forming this new company."

The finance minister said China may follow the lead of Singapore's Temasek Holdings, which manages nearly $90 billion in government pension funds and other assets. It owns stakes in Singapore Airlines and Singapore Telecom, as well as in banks, real estate, shipping, energy and other industries in India, China, South Korea and elsewhere.

Post by The Dragon Lady,  See full article at China Daily

How long will bull market last?

2007-05-28

Economists are divided about how long the Chinese mainland's bull stock market can continue to charge ahead, with some arguing that yuan-denominated A-shares are overvalued, the China Securities Journal reported on Monday.

"In my opinion, the benchmark Shanghai Composite Index could realistically hit 6,000 points in 2008", the report quoted Jin Yanshi, chief economist with Xiangcai Securities, as saying.

"The value of the A-share market would then be 24 trillion yuan (3.17 trillion U.S. dollars), equivalent to 96 percent of China's gross domestic product", Jin added.

Hua Sheng, president of Yanjing Overseas Chinese University, pooh-poohed Jin's prediction, saying the overheated market would not last long and that a 6,000-point index would require "a painful adjustment".

"Risks can be reduced if the government adopts a series of measures now to guide the stock market; otherwise the market will be unable to sustain the increasing risks," said Hua.

Post by The Dragon Lady,  See full article at China Daily.

Economy fuels M&As in China

China remains Asia's top market for financial services mergers and acquisitions (M&A ) because of underlying economic growth conditions, an annual survey by PricewaterhouseCoopers (PwC) suggests.

The opening of the financial sector late last year has also contributed to the faster pace of restructuring among domestic financial institutions and has prompted foreign banks to acquire stakes in domestic firms to gain a foothold in the Chinese market, PwC analysts said.

M&A activities are expected to expand from the banking and insurance sectors to stock broking and asset management, said the survey of 230 senior financial services executives across Asia.

At a press conference to introduce the report, PwC analysts warned that the fierce competition for assets in China requires discipline in pricing deals as China's financial services market becomes increasingly complex.

Post by The Dragon Lady, See full article @ China Daily.