China the One Investment Market that is Vibrant, Healthy, and Growing
Stock-Markets / China Stocks May 07, 2009 - 09:07 AM GMTBy: Uncommon_Wisdom
Tony Sagami writes: When is the last time you heard someone brag about how much money they were making as a day trader or house flipper? Answer: Not for a long, long time.
How about a red-hot IPO? Can you even name one IPO from this year?
Let me help you. The largest IPO in the world this year isn’t a whiz-bang tech stock or ready-to-cure-the-world biotech company. The largest IPO in the world this year is a boring aluminum company.
From China.
Yup, from China. Last week, Chinese aluminum-products maker China Zhongwang Holdings (Hong Kong: 1333.HK) went public on the Hong Kong Stock Exchange, raised $1.26 billion, and became the largest initial public offering in the world this year.
Zhongwang sold 26 percent of its shares at $7 (Hong Kong dollars) each, giving it a P/E of 10.7 times forecast 2009 earnings. Given the current exchange rate, that works out to about 90 U.S. cents a share.
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| Just last week, China Zhongwang Holdings’ IPO became the largest in the world this year. |
Zhongwang was able to go public because it is one of the largest beneficiaries of China’s $586 billion infrastructure spending spree. Zhongwang produces specialized aluminum products that are used to build railroad cars and other transport-related projects.
For example, the company has the contracts to supply materials to the new Terminal Three at the Beijing Capital International Airport and for the construction of the 2010 World Expo in Shanghai.
Liu Zhongtian, the man who founded the company in 1993 at age 29, still holds 74 percent of the shares, so he absolutely believes in the future of the company.
By the way, four of the 10 largest IPOs this year were Chinese companies.
Healthy IPOs = Healthy Market
I’m not telling you about Zhongwang because I think you should rush out and buy it. I am telling you about it because I believe that robust IPO markets only happen in countries with healthy stock markets.
If that is true, the Chinese stock market is one of the few places in the world that is vibrant, healthy, and growing.
Just look at what happened in China last Friday. The Hong Kong Hang Seng index rose 1.7 percent, the Shanghai Composite index up 1.2 percent, the Shenzhen Component index up 2 percent, and Taiwan’s TAIEX surged by an eye-opening 6.7 percent on Thursday.
For the year, the Shanghai Composite Index is up 40 percent.
The Wall Street crowd is even getting lathered up over what is happening in China. Merrill Lynch raised its forecast for China’s GDP from 7.2 percent to 8 percent, Goldman Sachs increased its projection from 6 percent to 8.3 percent, UBS from 6.5 percent to 7 percent, and CLSA Asia-Pacific from 5.5 percent to 7 percent.
My point is pretty simple. Should you have the majority of your equity dollars invested in the rapidly shrinking U.S. economy or in the rapidly expanding Chinese economy?
The answer is pretty darn simple to me, and the key to making money in China is to get ‘long’ whatever the Chinese are buying. Get in front of that Chinese demographic buying binge and you’ll do very well.
Hot Items in China
What are the Chinese buying like crazy? Food, natural resources, English lessons, luxury designer goods, and infrastructure construction companies, such as Zhongwang Holdings.
Here are a few other names:
Natural Resources: BHP Billiton (BHP), CNOOC Limited (CEO), Husky Energy (HUSKF), Cameco (CCJ)
English Lessons: New Oriental Education (EDU), ATA Inc. (ATAI)
Luxury Goods: Louis Vuitton (LVMUY), Coach (COH), Tiffany & Co (TIF)
Infrastructure: Komatsu (KMTUY), China Communications Construction (CUCSF), China Railway Construction (CRWOF)
China’s agriculture sector looks especially promising as an investment, and I say that because:
#1. China has changed from being a net exporter to being a net importer of major agricultural crops. With 1.3 billion hungry mouths to feed, China can’t produce enough food to meet its own demand, let alone other countries’ needs.
#2. Chinese agricultural companies are protected by the government, and foreign competition is heavily regulated. There are two Great Walls in China; the physical Great Wall and the governmental “great wall” that protects Chinese companies against foreign competitors. Chinese agricultural companies enjoy a state-sanctioned monopoly.
#3. Recent droughts and extreme water pollution have negatively impacted China’s food supply. Rapid industrialization has severely polluted China’s water supply and made the current drought even more painful.
#4. As more Chinese move from the rural interior to more affluent coastal cities, consumption of all food commodities have exploded. And this will only continue as more Chinese move into urban settings!
If you’re interested in the Chinese agricultural companies, there is no shortage of investment options, many of which are traded on U.S. exchanges.
Here is a partial list of companies that have piqued my interest:
American Dairy (ADY) is the largest dairy company in China.
AgFeed Corp (FEED) sells premixed food for livestock, particularly hogs.
Agria Corp (GRO) produces corn seed and sheep breeding products.
Chaoda Modern Agriculture (HK.0682) is China’s largest vegetable and fruit grower.
China Green Agriculture (CGA) makes humic acid, a liquid fertilizer.
China Mengniu Dairy (CIADY) is another Chinese dairy producer.
China Organic Agriculture (CNOA) is one of the largest producers of organic rice in the world.
Global Bio-Chem Technology (GBCMY) deals in corn starch, corn sweeteners, and corn feed.
Origin Agritech (SEED) makes bioengineered rice, corn, canola, and cotton seeds.
New Oriental Energy & Chemical (NOEC) manufactures urea, a chemical used for fertilizer.
Sinofert (SNFRY) is a major Chinese fertilizer distributor.
There are also dozens of American companies that are doing a substantial — and growing — amount of business in China. Some of the familiar names are Mosaic (MOS), Potash (POT), Archer-Daniels-Midland (ADM), Bunge (BG), and Monsanto (MON).
Hey, don’t rush out and buy any of these stocks without doing your homework. What I want to do is put a bug in your ear and encourage you to think China the next time you make a stock purchase.
Regards,
Tony
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