China real estate market

炒房揭秘内幕(translation by Google translate below). Let me summarize because Google translate did not do a good job. The guy was in pawn business. He used little own money to buy a house (he borrowed the money from bank). When the one year loan is due, he was very worried because his money is stuck in his business. The bank loan officer tell him not worry, just sell his house to his wife for a higher price (let his wife get a larger loan to pay off his first loan), in the process the loan officer will get a cut.

This seems just like the zero down payment, ARM rate in the US housing market a few years ago. All the hope was based on the rise of housing price. If the housing price plummet, obviously the banks will be left to hold bags (in China the mortgages are not securitilized).

Here is text generated by Google translate:

China stimulus package and market

Shanghai housing price heated up again recently, according to famous Shanghai blogger Wang Jianshuo. It’s no secret the stock market (Shanghai composite index) rebounded from 1,700 in last Oct. to 3,400 in last couple days, an 100% increase.

CNN had an article How to say bubble in Mandarin. Video below.

Mr. Market turned face

Some signs of the stock market is cracking:

1) The leaders such as Google (Nasdaq: GOOG), Apple (Nasdaq: AAPL), Berkshire Hathaway (NYSE: BRK.A, BRK.B) are retreating.

2) CIC is thinking about buying equities again, Renaissance Technologies is one option (last time CIC pulled trigger, it bought Blackstone pre-IPO at top).

3) Goldman Sach is selling. It sold a stake in ICBC recently.

4) Last but not least: US CEOs still pessimistic about economy.

Two leaders in this globe

Investing in China: I

I have talked about investing in China many times in this blog. Recently a good friend of my wife asked this question: how to protect her parents retirement (life style) now that they are near retirement?

I think this is a very good question, also a very common one. Recently I read Charlie Munger’s book Poor Charile’s Almanac, and he said three stocks are enought (diversified) if they are good stocks and the person trully understands it. I agree.

So, let me apply this three stocks approach and run a hypertheoritical portfolio for my wife’s friend (‘s parents 🙂

The first stock comes to mind is 601628.SS, China Life Insurance (NYSE: LFC; HKSE: 2628.HK). I talked China Life couple times, during its Shanghai IPO (secondary offering to be precise), and “Got Yuan” post. I believe China Life is uniquely positioned to take advantage of weakened competitors (China Ping’An and AIG China subsidiary), and this down market.

Disappointing moment

Obviously when Chinese track star Liu Xiang quit the race due to heel injury, we are all disappointed. Not only the fact he could not get a “face saving” gold medal, and he is China’s only hope on track and field (at least from men side); but also the fact we did not know how serious his injury was. At the same thing, I can fully appreciate the pressure on him, imagine 1.3 billion put hope on me. I would not think about that probability. My wife has a lot sympathy for Liu Xiang, but I rebutted “at least he is far richer than most of Chinese” 🙂

Stock market
China TechFaith also disappoints:
From Reuters, UPDATE 2-China TechFaith gives weak Q3 outlook; to cut jobs. So CNTF is following Spreadtrum SPRD’s step. Don’t try to bottom fish on them yet! I expect the handset business in China continues to be challenging, for the near future.

The broader market:
The US market goes sideways as financials and consumer spending continue the downward pressure. In China, the mood is much pessimistic, as the Shanghai composite drop around 2300, the lowest since early 2006. So are we heading to a real estate crash in China? Let’s me borrow one word from Mr. Greenspan, it’s possible, but unlikely.

Olympics official starts, market, tax refund

Beijing Olympics offically started just couple hours ago. Thanks to NBC pursuit of rating and advertising dollars, US auduiences won’t see live broadcast of the opening ceremony. A video playback will be shown tonight at 6:30 PM at local NBC channel (KSDK channel 5 in the case of St. Louis). It will last 4.5 hrs.

Sadly as I expected (did I sound like Dai Tou Da Ge), Shangai Composite Index dropped nearly 5% in this historical opening day. It seems neither fund managers nor retail investors (Shan Hu) are listening to president Hu’s advice, which is to have a strong and balanced stock market. Maybe those people will regret it sometime later?

On a positive note, I received my federal tax refund today. Just in time for more stock bargain hunting when CitiGroup and Merril are bailing out? My wife will not like this idea 🙂

China: embracing bear market after Olympics?

Couple days ago I suggested the China stock market could have a relief rally after Olympics, when the party is over without major glitches. I still belive Beijing Olympics will turn out to be ok, amid so much worries from human rights protests to security threats. I also believe Chinese economy will not stand still after the Olympics.

But I change my view on Chinese stocks today, after the Chinese ADRs dropped big in the US: from FXI (NYSE: FXI), to CHL (NYSE: CHL), to Sohu (Nasdaq: SOHU), all dropped around 5% or more today, less than 14 hours before the opening ceremony (which will begin Beijing time 8:08 PM, Aug.8 ). The problem is not only the expected slow down of Chinese economy, but also due to most Chinese stocks (from Shanghai, to Honghong, to NewYork) are over valued. Now they will get a reality check. Give an example, ICBC (1398.HK, 601398.SS), traded at 3 times book value, according to JRJ. That’s much higher than the US counter part such as BoA (NYSE: BAC), Wells Fargo (NYSE: WFC). Algthough we know US banks are in trouble lately because of subprime/credit crisis, ICBC can not justify its 3 times PB ratio if its growth slows down (which is possible).

So hold some cash, hold your breath, and I expect we are having a rough ride in the near future 🙂

Bottom fishing time?

Yesterday was another brutal day in the Wall Street, or the Bay Street (Toronto), or SSE (Shanghai Securities Exchange). According to the number, the Dow is now officially in bear territory. General Motor (NYSE:GM), a Dow component and an American icon, hit 53 years low. It closed at $11.43. So, should we go bottom fishing?

I am not a market timer, nor do I like to predict the market trend. But I noticed another interesting article from my friend Wang Jianshuo’s blog: Stock Market Big Drop. Note Jianshuo is not into stock market, a rare type in Shanghai. In other words, when people like Jianshuo started to pay attention to the market, things are either really good or bad (noteworthy). So, the 1 million dollar question: should we go bottom fishing? My answer is be careful, because if we don’t we will catch some falling knives instead 😦

Some ideas for bottom fishing

Reasons behind big drop in China market

Fundamentals
The common census is China economy growth will slow down significantly, due to the slow down from export (trouble in US economy); rising inflation (food, oil etc.)

The rights of minority shareholders are also not protected as well as mature market, because in some cases the management cooked up the accounting books, and get away from it.

The flaws in market itself
Recent arrest of former vice head of China securities regulatory commission (Wang Yi): people fear this is not an isolated event, and bigger fish will be caught as this thing unravels. Insider trading was rampant and still is prevalent in China. Insider trading reduces the confidence of long term investors, people just want to make quick money and run.

Shanghai melt down again

It was not too long ago (April 18 to be exact) Shanghai Composite Index hit a low of this year. Shortly after that Chinese goverment issued new policies trying to stablize the market. Well, it looks like we need the goverment do something about the market again: on June 10 the Shanghai composite dropped 257 points (7.73%), and closed at a new low of 3072. More than 1000 stocks dropped 10% in Shanghai and Shenzhen markets (see below).

(source: finance.cn.yahoo.com; full size picture here)