Monday, January 31, 2011

China - the market to tap on

China - the new growth market in Asia, the country that led the global economy out of doldrums in 2008, driven by the stimulus packaged offered by the local government

Why is it attractive?

1. One of the world most populous nation
2. Largest internet market users in the world
3. High demand for coal, iron ore and minerals - inbound & outbound
4. Infrastructure growth, production and development of raw materials
5. The need for clean water and proper sanitation facilities
6. Growing affluence of the Chinese to spend on luxury goods
7. Property - under-developed 2nd and 3rd tier cities into mega-malls/business hubs
8. Widespread need for quality health care services

The list goes on and on...

I am keen to enter into the China market via paper assets such as equities, mainly into shares. There are, of course, other options such as bonds, ETFs and other asset classes/instruments to consider. Please consult your Financial Adviser :)

Let's focus on shares. 3 ways to gain exposure:

(a) Buy into "S-chips", listed in SGX
(b) Buy into locally owned companies/blue chips in SGX which have exposure in China
(c) Buy directly into H-shares listed in HKSE via a brokerage firm

For me, I choose all 3 options, as long as the companies owned are attractive. For example, C&O Pharmaceutical belongs to (a) and CapitalMall Asia belongs to (b). My personal watchlist is Industrial Commercial Bank of China (ICBC) - option (c).

Today, I will explore into (c) - H shares listed in HKSE. Which sectors and companies sounds interesting to capitalize on the growth opportunities?

(Below are just my personal thoughts. They are NOT stock picks)

China/HK-based companies listed in HKSE:



(i) Sector A - Infrastructure

Examples:
- China Railway Group Ltd
- China Pipe Group
- Jiangsu Express (construction, operation & management of toll roads in PRC)
- Midas Holdings
- Shenzhen Express (construction, operation & management of toll roads in PRC)

(ii) Sector B - Energy, Water, Minerals and Resources

Examples:
- China Power
- PetroChina
- China Water Industry Group Ltd (provision of water supply and sewage treatment)
- Tianye Water
- China WindPower Group
- China Coal
- Huaneng Power International(electricity)
- HK and China Gas
- CNOOC (crude oil, natural gas etc.)
- Fushan International Energy Group (coking coal)
- Jiangxi Copper Co Ltd
- Chalco (Aluminium)
- Huadian Power (electricity)
- China Corn Oil
- China Agrotech Holdings (fertilizers)
- Datang Power
- China Shenhua
- Sinopec

(ii) Sector C - Financial

Examples:
- China Construction Bank (CCB)
- ICBC (my personal watchlist)
- Bank of China (BOC)
- Agriculture Bank of China
- HSBC
- Standard Chartered
- Hang Seng
- China Merchant (investing in companies with significant involvement in PRC)
- China Life
- Manulife
- ITC Corporation
- Minsheng Bank
- Value Partners Group Ltd
- China Inv Funds

(iii) Sector D - Health-care & Pharmaceutical

- China Pharma
- EcoGreen Fine Chemicals (part of their production and trading includes pharma)
- Jiwa Bio-Pharm Holdings Ltd
- Sihuan Pharmaceutical Holdings
- United Laboratories International Holdings

Looking at the list above, the sector (b) looks attractive for potential upside in the future, depending on the size of the resources, demand and supply.

Should I have the spare cash, I may consider sector (b).

Generally, I prefer state-owned enterprises that has the financial backing by the local government and hence, the ability to expand overseas through M&As, new market entries or strategic diversification. Most importantly, globalization - turn to a worldwide valuable brand that has a high demand, despite all odds and regulations.



The general downside is, the quality control, consistency, financial and business risks involved. Another disadvantage is corporate governance and for some local shareholders in SG - unfamiliarity with the management and the business units.

At the current moment, my main focus is 1398.hk - Industrial & Commercial Bank of China (ICBC). I did a post on here - http://ktwealth.blogspot.com/2011/01/icbc-industrial-commercial-bank-of.html

If the price is right, I may go for a shot at ICBC. Good luck to me! :)

2 comments:

  1. China is a little too hyped-up, in my opinion.

    ReplyDelete
  2. That's true but I believe there is still room to grow based on the factors above.

    Can't just ignore China. Ride on the trends and maximize the opportunities, exit once danger lurks :)

    Gong Xi Fa Cai, Musicwhiz!

    ReplyDelete

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