You would have thought when you read this headline that Bank of China (#3988) had lost a lot of money (just like the US banks did). Well, I did anyway.
China's 3rd largest bank actually made RMB42 billion in profits, up 42% year on year. The headline refers to the fact that it lags behind other state owned banks in profit GROWTH! ICBC (#1398) grew 57% and CCB (#939) grew 71%.
As China's foreign exchange bank, BOC has a lot of foreign currency (USD) assets and the rise of the RMB against the USD has led to revaluation losses. But goes around, comes around. When the USD starts to strengthen again, it will mean revaluation profits.
But BOC's biggest handicap vis-a-vis ICBC and CCB is the lack of a large domestic deposit and customer base. When you buy China concept, you want to buy Chinese assets and income streams, not someone who holds a lot of foreign currency assets. may as well buy HSBC.
Friday, August 29, 2008
Tuesday, August 26, 2008
How Much Did China Spend On The Olympics?
The commonly used figure is RMB300 billion. Of this, USD100 million was spent on the opening and closing ceremonies alone.
All this is at the "China Price". That is, a dollar in China goes a lot further than a dollar in the US or the UK. I don't think we will ever get to see another Olympics like this as no other government will be willing to spend so much on the Games.
India is the only other country with a large population and low cost. And the infra structure will certainly need to be upgraded. However, with a democratically elected government it is unlikely to be able to devote so much of the national resources to putting on the Games.
All this is at the "China Price". That is, a dollar in China goes a lot further than a dollar in the US or the UK. I don't think we will ever get to see another Olympics like this as no other government will be willing to spend so much on the Games.
India is the only other country with a large population and low cost. And the infra structure will certainly need to be upgraded. However, with a democratically elected government it is unlikely to be able to devote so much of the national resources to putting on the Games.
China Life Insurance (#2628)
Earnings in the 1st half of 2008 came to RMB15.8 billion (down 31% from last year) due mainly to investment losses.
Most people think that insurance companies make money from the premiums they charge. Even though the premiums are hefty, on balance most insurance companies break even on a multi year basis. However, they get to bill policy holders at the start of the life of the insurance and get to keep the premium until they have to make pay outs (most of the time delaying further from the time of the claim). They make their money from investing the premiums received.
Last year insurance companies in China had a bumper year with the Chinese stock market rising to an all time high. They were helped further by being given preferential treatment in allocation of IPO shares. The Chinese market is down over 60% from the peak, and instead of investment income the insurance companies are faced with investment losses/. This is not helped by the accounting treatment of having to write down unrealised losses.
Premium income was RMB79 billion, up 24%. Investment income fell 47% due to write downs of RMB6.49 billion in unrealised losses. China Life was saved from further losses because their investment in VISA IPO (USD300 million) rose substantially.
China Life is China's largest insurer. No. 2 insurer, Ping An, reported 1st half profits of RMB9.7 billion, up 2%.
Is it time to buy Chinese insurance companies. I think not. The China insurance regulator has been urging insurance companies to reduce their portfolios. I would have thought that now is a good time to increase the proportion of marked down securities. Thus, when the market recovers, the insurance companies will not be able to participate because they have sold down their investments.
Most people think that insurance companies make money from the premiums they charge. Even though the premiums are hefty, on balance most insurance companies break even on a multi year basis. However, they get to bill policy holders at the start of the life of the insurance and get to keep the premium until they have to make pay outs (most of the time delaying further from the time of the claim). They make their money from investing the premiums received.
Last year insurance companies in China had a bumper year with the Chinese stock market rising to an all time high. They were helped further by being given preferential treatment in allocation of IPO shares. The Chinese market is down over 60% from the peak, and instead of investment income the insurance companies are faced with investment losses/. This is not helped by the accounting treatment of having to write down unrealised losses.
Premium income was RMB79 billion, up 24%. Investment income fell 47% due to write downs of RMB6.49 billion in unrealised losses. China Life was saved from further losses because their investment in VISA IPO (USD300 million) rose substantially.
China Life is China's largest insurer. No. 2 insurer, Ping An, reported 1st half profits of RMB9.7 billion, up 2%.
Is it time to buy Chinese insurance companies. I think not. The China insurance regulator has been urging insurance companies to reduce their portfolios. I would have thought that now is a good time to increase the proportion of marked down securities. Thus, when the market recovers, the insurance companies will not be able to participate because they have sold down their investments.
Tuesday, August 19, 2008
Timing is Right
After yesterday's decline of 5.3%, the Shanghai index has dropped over 60% from the peak of October 2008, average P/E is now 15x compared to US of 23x (although HK is cheaper still at 13x).
The Chinese authorities are concentrating on the Olympics right now but as soon as that is over, the focus will move back to the economy. Over the past month, the authorities have already announced a loosening of loans to SME's. In the wake of the snow disaster in the first quarter and the Sichuan earthquake, trhere will be massive infrastructure programmes. Over the next 2 years, these are estimated at over USD200 billion a year.
With inflation starting to come back under control and oil prices moving back down, the authorities now has more room to move. Don't forget, 2009 is the 60th anniversary of the birth of New China. Celebrations in Ocotber 2009 will eclipse the Olympics which after all is for the foreigners and external media to say that we have arrived. The 60th anniversary is for the Chinese citizens. So the economy better be good!
The Chinese authorities are concentrating on the Olympics right now but as soon as that is over, the focus will move back to the economy. Over the past month, the authorities have already announced a loosening of loans to SME's. In the wake of the snow disaster in the first quarter and the Sichuan earthquake, trhere will be massive infrastructure programmes. Over the next 2 years, these are estimated at over USD200 billion a year.
With inflation starting to come back under control and oil prices moving back down, the authorities now has more room to move. Don't forget, 2009 is the 60th anniversary of the birth of New China. Celebrations in Ocotber 2009 will eclipse the Olympics which after all is for the foreigners and external media to say that we have arrived. The 60th anniversary is for the Chinese citizens. So the economy better be good!
Friday, August 15, 2008
China Stocks Cheapest Level in Last 3 Years
China stocks are trading at levels last seen since 3 years ago. P/E in Shanghai is 19x compared with 20x in June 2005, and 26x for S&P 500. But you should still buy the same stocks in HK as they are only trading at 13x.
Start accumulating for the long term.
Start accumulating for the long term.
China"s Inflation Down To 6.3% in July 2008
After hitting a high of 8.7% in February 2008, the inflation rate trended downwards and was 6.3% in July 2008 (5.6% same period last year).
With inflation slowing, this gives the Beijing room to start reducing interest rates and increasing the amount that banks can lend in order to boost economic growth. This shows that Beijing's efforts at reigning in growth is working and inflation for the year should come in around 7% which will still be below GDP growth expected at 10%.
With inflation slowing, this gives the Beijing room to start reducing interest rates and increasing the amount that banks can lend in order to boost economic growth. This shows that Beijing's efforts at reigning in growth is working and inflation for the year should come in around 7% which will still be below GDP growth expected at 10%.
Saturday, August 09, 2008
IPO: China Southern Locomotive & Rolling Stock
Stock Code: 1766
Number of Offering Shares: 1,600,000,000 H Shares (subject to Over-allotment option)
Number of Public Offer Shares: 160,000,000 H Shares (subject to adjustment)
Maximum Offer Price: HK$2.76 per Share (HK$2,787.85 per board lot)
Sponsors: China International Capital; Macquarie Capital
Time Table
Offer Period: 13 August 2008 before 12:00 noon
Allocation Result & Refund: August 20, 2008 (Wednesday)
Dealing commences on: August 21, 2008 (Thursday)
Application cut off time if applied through Goldride Securities Limited
- Financing required: August 12, 2008 12:00
- Apply with full deposit: August 12, 2008 16:00
Financing: 90% financing available
- Minimum application amount for margin financing: HK$500,000
- Interest rate applicable (indication only, subject to change): 3.5% p.a
Application Charges: HK$50.00
Clients who intend to make applications through Goldride Securities Limited should contact your accounts executives prior to the cut off time. Clients are requested to deposit sufficient money into their securities account prior to the placement of orders. The margin finance facility will only be available while funding lasts.
Number of Offering Shares: 1,600,000,000 H Shares (subject to Over-allotment option)
Number of Public Offer Shares: 160,000,000 H Shares (subject to adjustment)
Maximum Offer Price: HK$2.76 per Share (HK$2,787.85 per board lot)
Sponsors: China International Capital; Macquarie Capital
Time Table
Offer Period: 13 August 2008 before 12:00 noon
Allocation Result & Refund: August 20, 2008 (Wednesday)
Dealing commences on: August 21, 2008 (Thursday)
Application cut off time if applied through Goldride Securities Limited
- Financing required: August 12, 2008 12:00
- Apply with full deposit: August 12, 2008 16:00
Financing: 90% financing available
- Minimum application amount for margin financing: HK$500,000
- Interest rate applicable (indication only, subject to change): 3.5% p.a
Application Charges: HK$50.00
Clients who intend to make applications through Goldride Securities Limited should contact your accounts executives prior to the cut off time. Clients are requested to deposit sufficient money into their securities account prior to the placement of orders. The margin finance facility will only be available while funding lasts.
HK Fx Reserves Rank 9th Worldwide
HK Fx reserves grew to USD157.7 billion at the end of Jul 2008 (up 0.6%from USD157.6 billion at the end of June 2008). The world's largest foreign currency holdings: China, Russia, India, Taiwan, South Korea, Brazil, Singapore, and HK.
But HK is the only place with no currency controls. In China the government restricts the amount of foreign currency that can be held by the residents and exchanges RMB for your foreign currency holdings. If you need to get foreign currency, for example for travel and trade you will need to apply to exchange your RMB.
China has loosened Fx controls in the past few years on the back of increased foreign currency reserves, and Chinese citizens now can exchange USD20,000 per year. However, that does not mean that they can carry that much out of the country.
In India, citizens can invest USD200,000 per year overseas.
But HK is the only place with no currency controls. In China the government restricts the amount of foreign currency that can be held by the residents and exchanges RMB for your foreign currency holdings. If you need to get foreign currency, for example for travel and trade you will need to apply to exchange your RMB.
China has loosened Fx controls in the past few years on the back of increased foreign currency reserves, and Chinese citizens now can exchange USD20,000 per year. However, that does not mean that they can carry that much out of the country.
In India, citizens can invest USD200,000 per year overseas.
Wednesday, August 06, 2008
Why Buy Into The China Story?
Bank of East Asia: Earnings dives 52% in 1st half 2008 due to losses in financial instruments while net profits from maniland China operations rose 50% or 26% of income(excluding writedowns).
HSBC: 29% down in earnings
StanChart Bank: 30% growth in 1st half profits. Operating profits from China operations (excluding last year's one off profits) were up 50%. India first half pre tax profits up 89% while HK accounts for 25% of profits. The bank is looking to list in India and China eventually.
If the foreign banks are looking to list in China, and China accounts for over 50% of their profits, then it is obvious that the Chinese banks themselves are a good buy. The competition will be growing but the pace of foreign banks expansion into China is restricted and they will not have a major deposit base.
The analogy is the foerign banks in HK find it difficult to compete with HSBC, StanfChart and bank fo China for local deposits relying instead on borrowing from them on the inter bank market.
The biggest assets of the Chinese banks are their huge deposit base and branch networks. A foreign will have no chance of duplicating that.
HSBC: 29% down in earnings
StanChart Bank: 30% growth in 1st half profits. Operating profits from China operations (excluding last year's one off profits) were up 50%. India first half pre tax profits up 89% while HK accounts for 25% of profits. The bank is looking to list in India and China eventually.
If the foreign banks are looking to list in China, and China accounts for over 50% of their profits, then it is obvious that the Chinese banks themselves are a good buy. The competition will be growing but the pace of foreign banks expansion into China is restricted and they will not have a major deposit base.
The analogy is the foerign banks in HK find it difficult to compete with HSBC, StanfChart and bank fo China for local deposits relying instead on borrowing from them on the inter bank market.
The biggest assets of the Chinese banks are their huge deposit base and branch networks. A foreign will have no chance of duplicating that.
How to invest in Chinese RMB?
RMB deposits in HK rose by RMB 48 billion from November 2007 to April 2008. By May 2008 RMB deposits were RMB 77.68 billion (three times RMB 26.16 billion in May 2007, and 87 times RMB 895 million when RMB deposits first started in HK in 2004).
RMB deposit rates: 1% pa
Morgan Stanley: RMB still undervalued. Expect RMB 6.60 by end 2008, and 6.30 by end 2009 to the USD.
Credit Suisse: 6.75 (2008) and 6.15 (2009)
HSBC: 6.77(2008) and 6.33 (2009)
How to take advantage of the strength of the RMB? Well, you can't buy RMB because of foreign exchange control but you can buy Chinese companies listed in HK with RMB assets and RMB income streams. The dividends is in RMB but converted to HK$ which is pegged to the US$. Therefore, this is a proxy for investing in RMB.
RMB deposit rates: 1% pa
Morgan Stanley: RMB still undervalued. Expect RMB 6.60 by end 2008, and 6.30 by end 2009 to the USD.
Credit Suisse: 6.75 (2008) and 6.15 (2009)
HSBC: 6.77(2008) and 6.33 (2009)
How to take advantage of the strength of the RMB? Well, you can't buy RMB because of foreign exchange control but you can buy Chinese companies listed in HK with RMB assets and RMB income streams. The dividends is in RMB but converted to HK$ which is pegged to the US$. Therefore, this is a proxy for investing in RMB.
Monday, August 04, 2008
HKEx Launched Gold ETF
The HKEx has just launched a Gold ETF (#2840). For those who wants to take a punt on the price of gold, this is a new vehicle which is a lot safer than gold futures or trading in commodities.
The SPDR Gold Trust is one of the world's largest commodity ETF (fund size > US$19billion). See www.spdrgoldshares.com.
Geolocate this post
Posted with LifeCast
The SPDR Gold Trust is one of the world's largest commodity ETF (fund size > US$19billion). See www.spdrgoldshares.com.
Geolocate this post
Posted with LifeCast
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