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Two of China's largest oil companies announced earnings for the first half of 2008 today. CNOOC Ltd. (NYSE:CEO), the country's second largest producer, reported a sales increase of nearly 64% over the first half of 2007, and net profit growth of 89.3% over the same period. PetroChina (NYSE:PTR) reported an earnings drop of 38% compared with the first half of 2007.
Continue reading "Oil in China: Producers, Up; Refiners, Down (CEO, PTR)" »
China's oil and gas price policy may be good for drivers of cars and trucks in this huge communist country, but it is really bad for profits of the nation's oil companies. China Petroleum & Chemical (SNP) had its margins destroyed by the central government caps on gas and diesel priced.
Too bad the same program is not available in the US. Gas would be $1.50 a gallon.
Continue reading "China Petroleum (SNP) Margins Hammered By Communist Gas Pricing" »
The term "China economic stimulus package" has to be an oxymoron.
NBC recently made the point that China's economy can no longer be driven hard by exports. They have become too expensive as labor costs and commodities have risen. Some industries are actually cutting jobs.
Continue reading "China's Economic Stimulus Package Can't Be Real" »
There was a release this morning showing that a Special Purpose Acquisition Company (SPAC, or blank check company) called Alyst Acquisition Corp. (AMEX: AYA) has signed an agreement to acquire all of the shares of China Networks Media Ltd., a British Virgin Islands company which owns and is in the process of acquiring television station operating assets in the People's Republic of China.
Continue reading "China SPAC Goes Operational: Alyst Acquisition Corp. (AYA)" »
Every day we cover many stocks at the end of the day which are hitting new 52-week lows. Very rarely do we include ETF's or closed-end mutual funds in the coverage on that list. But what is becoming amazing is the daily reckoning we are witnessing where the 52-week low list is dominated by emerging market instruments that trade on the NYSE or AMEX as ETF's and as closed-end funds. The list is becoming so staggering that you wonder just were the money really is going. The US dollar is getting some strength finally, but the markets in emerging markets are getting pounded daily in these instruments.
Since China has grown so fast over the last decade, that the definition of "recession" may be different than it is in the US or EU.
China's growth slowed to 10.1% in the last quarter. That means the economy has been losing its acceleration for more than a year.
Car sales in China may not have gone negative year-over-year, but they are getting close. In July, sedan sales were only up 1.9%. If SUVs and light trucks are thrown in, the increase was 6.8%. So, less fuel-efficient vehicles are still leading the industry upward.
The problem with light trucks being at the cutting edge of sales increases is that China is slowly increasing the prices of gas and diesel to try to push down demand and to cut the subsidies it gives to its big oil companies to buy crude high and sell buy-products low. The practice costs the central government tens of billions of dollars a year.
Continue reading "China Cars Sales Slow To A Walk, A Bad Dream In Detroit (GM)(F)" »
During the second quarter, the GDP of Hong Kong was up 4.2%. Analysts had forecast that number at 5.3%. While the "colony" is somewhat walled of from the mainland, the economies of the two are co-mingled to a great extent. What happens in Hong Kong does not stay in Hong Kong.
The news is not sparkling for the Chinese economy has a whole.
The sun can never set on a day before some large multinational company says that its future is in China. Why should Nokia (NOK) be an exception?
Nokia management opines that, even though 600 million Chinese have cellphone, that the figure could rise sharply in the next few years.
Continue reading "Like Every Other Company In The World, Nokia (NOK) Turns To China" »
No wonder Dell (DELL) and Hewlett-Packard (HPQ) wish they had higher market shares in China. While sales are slowing in the US, big China-based PC firm Lenovo says its revenue and earnings are moving up fine, despite a slowdown in America.
The company reported profit for the three months ending June 30 was $110 million, or $1.25 per share.. Sales rose 10 percent to $4.2 billion.
Continue reading "Lenovo: PCs Still Selling In China (DELL)(HPQ)" »
This morning we are seeing some news out of 3Com Corporation (Nasdaq: COMS) which many may have guessed wouldn't be possible. The networking company raised guidance previously provided for the quarter-end of August 29, 2008. The company now sees $335 to $340 million in revenues, above previous guidance of $325 to $330 million and above First Call estimates of $327.7 million. The new non-GAAP guidance is $28 to $32 Million and $0.06 to $0.08 EPS, above prior targets of $0.03 to $0.05 EPS and above First Call estimates of $0.04 EPS.
Continue reading "3COM Pulls A Rabbit From Its Hat (COMS)" »
Japan hosted the Olympics in 1972, toward the end of a decade in which its economy grew 10%. Now China gets the games and word is that its GDP expansion will be a disappointing 9% this year. None of that means anything. Any country can get the games now. Luxembourg and Iceland probably have a shot.
China does have trouble, and it is not like anything the country has ever experienced.
China now has more people online than the US, 253 million to be exact. The 
China Internet Network Information Center says that the number of internet users was up 56% from June last year.
The AP writes that "The United States had an estimated 223.1 million Internet users in June, according to Nielsen Online." Given the Chinese grow rate, the gulf is likely to get much larger over the next several years.
When the Chinese government pushed its retail union into Wal-Mart (WMT) two years ago, the world's largest retailer should have figured that it was only the beginning of trouble.
Now labor has forced an 8% wage increase on the company for both this year and next.
Continue reading "Wal-Mart (WMT) Learns China's Hard Lesson" »
Baidu.com, Inc. (Nasdaq: BIDU) just posted its quarterly earnings report, and our conversions are into US Dollars rather than Chinese RMB.
The Chinese internet search giant said operating income rose about 86% and showed $1.11 net EPS and $1.23 non-GAAP EPS on a 100% gain in revenues to $117.0 million. Estimates were $0.98 EPS on $112.5 million. Baidu noted that Traffic acquisition costs (TAC) were $14.8 million. That TAC weighting is about 12.7% of total revenues, above the 11.2% from last quarter.
A recession cannot exist without two consecutive quarters of negative GDP growth. It is right there in every economics textbook.
China may be a bit different and may show that the definition of "recession" must be relative.
GDP growth fell to 10.1% in China last quarter. In a place like Germany, double digit GDP improvements would be the beginnings of a economic miracle not seen for decades.
But, China has a set of problems all its own. Last month, the inflation rate in the big Asian country was about 7%. But, for food commodities, the figure was closer to 20%. Fuel prices would be spiking, but the government underwrites those. There is some indication that aid on gas and diesel prices is beginning to ebb.
Much of the growth in China depends on the ability of its middle class to consumer goods and services from both their native country and overseas. The primary pressure on GDP now is slowing in export growth as the great economies of the West falter. Improving the wages of the Chinese middle class is tough when the export engine is losing capacity.
The net worth of the Chinese who have money to spend has almost certainly been dinged by the 50% plus drop of value of stocks traded on the Shanghai stock exchange. The Shanghai Composite is the worst performing index in the world for the first eight months of this year. For 2007, it was among the best.
Imagine what would happen to consumer purcahsing power in the US if the Nasdaq dropped 50%.
China exports are going to continue to fall. The market of overseas buyers is dissolving into one of the largest housing recession in half a century.
Recession may get a new definition in China. GDP growth may be OK, but it does not offset a living wage that cannot support basic consumer spending and losses from a collapsing stock market. When the middle class is broke, so is the economy.
Douglas A. McIntyre
"Strong wind does not last all morning; strong rain does not continue all day"--Lao Tsu, Tai Te Ching
China's mighty export machine, the envy of the 21st century economic world, is starting to slow. The effects have already moved well beyond the mainland's shores and they are only just beginning.
According to The Wall Street Journal, "China's exports in June grew 17.6% from a year earlier, slowing sharply from the 28.1% increase in May and below market expectations." The reason seems to be a poor economy in the US which is likely to spread quickly to the EU and Japan. In other words, China's problems will get worse.
China now has troubles which are fraternal twins. Inflation has stepped up sharply. Depending on who is measuring it is in the 8% range, but food costs are rising much, much faster.
As exports slow, the rate at which Chinese middle class wages will rise is also likely to get hit. When companies are selling less, they cannot pay their people more. That leaves the central government in a bit of a bind.
If the combination of a slowing economy and rising energy and food costs may hurt the US, they could hurt China worse. The mainland's financial dynamics are a caricature of America.
Exports are the meat and potatoes of China's opportunity to become the world's largest economy. The excess capital that goes into its sovereign funds and invests in advances in technology and industrial improvements are all driven by the money which comes into the nation for its goods.If the money flow lessens, the entire system is compromised.
There is a temptation to compare China to the Japan of a generation ago. Japan was on its way to becoming the world's largest economy. Its stock market was rocketing up, and with it the value of real estate. Exports were the fuel of the entire system.
China's ability to increase GDP is based less on what it consumes within its boarders that what it sends abroad. The cycle to change that will take a long time. The wealth inside its borders is not great enough. And, the process to correct that is becoming arrested.
Douglas A. McIntyre
Inflation in China during the month of June was "only" 7.1%. That was slightly better than the two months before, but, according to Reuters, "consumer prices were 7.9 percent higher than a year earlier -- well above the government's official full-year target of 4.8 percent."
China's inflation problem may be the most serious potential cause of stagflation in the US. The American economy is already slowing and many economists believe that GDP growth will be negative in the third and fourth quarters.
The recession may be bad, but the extent to which it can be weathered depends a great deal on whether inflation is "imported" from abroad. Abroad mostly means China since such a large portion of US goods from overseas come from the world's most populated country.
China's economy presents it with problems which it may not be able to solve, at least for now. Rising oil and commodities prices appear to be hitting it worse than in most countries. With a rapidly rising GDP, local personal income is going up, allowing manufacturers to charge the typical consumer there more. But, if passing along the costs of raw material could be limited to China, the demand for its exports would not be at risk.
The US consumer is already paying an historically high price for gas. Commodities costs are getting close.If the products coming into Wal-Mart (WMT) costs a good deal more because Chinese prices are rising, Americans have no where to go for inflation shelter.
China does not have a stagflation problem yet. For now, it is sending the potential for that trouble overseas to places like the US. But, when sales of its products begin to wane, the issue becomes global.
Douglas A. McIntyre
During the 19th century, the West began a brisk trade relationship with the Chinese though Canton. It has been a good deal for both sides, with a few exceptions like the First Anglo-Chinese War, ever since.
China has now developed a problem which undermines the foundation of what has been its attraction as an exporter for countless decades. Inflation in the country is increasing the costs of its goods. According to The Wall Street Journal, the heart of the problem is that "manufacturers say their profits have dwindled as they pay out more for raw materials and energy." With oil at $140 and inflation in China running at 11%, the situation is likely to get worse.
China's new inflation problem is a bigger problem for the West. Price increases on a huge number of products have been kept in check because they are made cheaply on the mainland and bought for retail sale everywhere from the US to Germany. A run-up of prices in goods out of China means a run-up in the prices for all of these items in the countries which import them.
A number of economists and retail executives have put forward the thesis that Vietnam and other poor Asia countries can replace China as a source for imports. The trouble is that Vietnam does not have 1.3 billion people and the infrastructure to be a major manufacturing.
China's inflation is spreading to the West and little can be done about it.
Douglas A. McIntyre
Advanced Battery Technologies, Inc. (NASDAQ: ABAT) has signed a contract with Quanzhou Hongtian Science & Technology Development Co., Ltd. (QHSTD) in a deal valued at some $5 million. Advanced Battery Technologies, Inc. develops, manufactures, and distributes rechargeable polymer lithium-ion (PLI) battery cells for use in electric vehicles, mining equipment, and a variety of other consumer electronics.
The PLI cells being sold to QHSTD will be utilized to power a new generation of high-power and long life handheld searchlights for a brighter and lighter searchlight with a range of lighting up to 1,000 meters (close to 3,300 feet) and over 10 hours of continuous discharging time.
The company also noted that back in January it signed a $23.4 million contract. Its market cap sits at $248 million before the 4% rise pre-market and its entire revenues in 2007 were $31.898 million.
Jon C. Ogg
June 24, 2008
Gushan Environmental Energy Limited (NYSE: GU) has filed to sell up to $100 million in ordinary shares, which it notes as having a HK$0.0001 par value (HONG KONG). This notes that selling shareholders are selling ADS's, with each share representing 2 ordinary shares.
This is an unspecified number of shares but based upon a closing price of $11.78 (-6.5% today) of nearly 8.5 million shares. Gushan will not receive any of the proceeds from this offering.
The underwriting group here is rather large for a $100 million secondary offering. Merrill Lynch is the lead underwriter; co-managers are listed as Oppenheimer, Piper Jaffray, and as Ardour Capital Investments.
Gushan is supposed to be the largest biodiesel producer in China as measured by annual production capacity with a target of annual production capacity to 400,000 tons by the end of 2008.
Shares are down 0.5% at $11.72 in after-hours trading and the market cap as of the close was $982 million. Gushan has only been public since December 2007 and it traded under $10.00 at the open. Its post-IPO trading range since the IPO has been $7.00 to $17.95.
Jon C. Ogg
June 23, 2008
Alcatel-Lucent (NYSE: ALU) announced after the close that it has signed a $1 Billion (one billion dollars) framework agreement for 2008 with China Mobile where it will provide mobile communication equipment and services to Chinese mobile giant.
The agreement was secured through Alcatel-Lucent's flagship company in China, Alcatel Shanghai Bell. Alcatel-Lucent will provide China Mobile with the following:
As far as $1 Billion and how that relates to 2008, First Call has estimates for the telecom equipment company projected north of $26 Billion for the entire fiscal 2008.
Alcatel-Lucent closed up 1.6% at $6.73 along with tech shares today in regular trading. Late after-hours trading has the stock up roughly 4% at $7.00, although listed volume and this far into after-hours may be very different than tomorrow. Its 52-week trading range is $5.08 to $14.57.
Jon C. Ogg
June 16, 2008
Due to slowing GDP growth in the West, especially in the US, and constant and rapid GDP growth in the BRIC nations, their portion of the global economy will be much larger than estimated during the next few years.
BRIC stands for Brazil, Russia, India and China.
According to Reuters, "Jim O'Neill, the Goldman Sachs economist who originated the term in 2003, said the financial crisis that began in U.S. mortgage security markets was allowing the BRIC countries to take a bigger share of world gross domestic product".
Focus Media Holding Ltd. (NASDAQ: FMCN) has just posted earnings. Despite beating estimates, Wall Street isn't trusting its guidance issues "from the earthquake."
Total GAAP revenues grew 214.7% year-over-year to $161.6 million. GAAP net loss for the first quarter was $53.8 million or -$0.42 EPS (ADS) after a non-recurring loss of $79.3 million resulting from the restructuring. On a non-GAAP basis outside of restructuring and other items it recorded $44.8 million in net income with $0.34 non-GAAP EPS. First Call had estimates at $162 million in revenues and $0.33 EPS.
This is probably not a huge shock when you consider its business, but the company noted that the earthquake in Sichuan province is going to bring down some adjusted ad numbers:
Because this ad company has a premium to it and because of the China syndrome, Wall Street isn't giving the company any break at all over the earthquake being tied to the revenues. Shares were up 2.6% today at $36.79 in regular trading, but shares are down almost 7% at $34.31 in after-hours trading.
Jon C. Ogg
June 5, 2008
There was some interesting news over at Franklin Resources, Inc. (NYSE:BEN) today. The company manages the Templeton Dragon Fund, Inc. (NYSE:TDF), a closed-end mutual fund run by legendary emerging market investment manager Mark Mobius which invests at least 45% of its total assets in Chinese equities.
The fund announced today that the votes at the Fund's Annual Meeting of Shareholders held on May 30, 2008 have been tallied. Shareholders approves the election of directors, but the voted down a shareholder proposal to consider approving and submitting for shareholder approval at a future shareholder meeting a proposal to convert the closed-end status of the fund to an open-end fund.
The Fund currently has total assets in excess of $1.2 billion, and while that is big in size it is small compared to Franklin Templeton's $617+ Billion in assets under management as of April 30, 2008. It won't have any impact at all on franklin Resources, but this will at least in theory keep one more fund from raising several billion that could have run up more Chinese shares. It also allows the fund managers to work within size constraints without having to make investment decisions based largely upon inflows and redemptions.
Jon C. Ogg
June 2, 2008
There is a complicated merger in the Chinese telecom market, which is part of the government mandate to consolidate a fragmented telecom industry in China.
China Unicom Ltd. (NYSE: CHU) has formalized a deal that came out over the weekend to acquire China Netcom Group Corp. (NYSE: CN) in a deal that puts the debt and equity value around $56.3 Billion. In a separate deal, China Telecom Corp. (NYSE: CHA) will acquire China Unicom parent's CDMA network for roughly $15.86 Billion in cash. China Netcom will be delisted and will become a wholly-owned subsidiary of China Unicom.
Recently, China's government had mandated a restructuring of the country's six major telecom operators where these will become three entities. Interestingly enough, China believes that the more consolidated players will create more competition and prevent any single carrier from a winner take all position.
China Unicom is the major CDMA service provider in China, and it has some 42 million subscribers as of the end of 2007. Because these stocks were all tied up in a coming deal, some of the shares had been halted on local exchanges while these terms were being worked out.
While it may be hard to interpret or play play the consolidation waves in China's telecom mergers, one winner of this merger will likely be Qualcomm Inc. (NASDAQ: QCOM) because it wins on every new CDMA user it gets. This of course assumes that the other deals don't take away from the company's CDMA and WCDMA user base, and that is not necessarily an assured outcome.
You can join our open email distribution list to hear about other mergers, IPO's, secondary financings, restructurings, and other special situations.
Jon C. Ogg
June 2, 2008
There have been rumors that the economy in China might slow. They have gone on for almost a year. Now, the evidence is mounting that the growth of GDP in the big Asia country is actually dropping off.
According to Bloomberg, Weaker expansions in economies around the world are cooling demand for made-in-China goods, leading the central bank to last week forecast a ``moderate'' slowing of economic growth this year.
Governments around the world are notorious for being too optimistic about their economies. China may be doing worse than the internal figures let on.
The drop-off in China is, of course, due to problems in the West hurting demand for its exports. That trouble has only just begun. The consumer, at least in the US, can't afford gas, food, and a mortgage. That leave the hunger for goods, Chinese or otherwise, undermined.
It is clear to see what a slowdown in America and Europe does to the China economy, but it is harder to see what trouble in China does to the countries which take most of its exports.
The answer is probably fairly little. It is likely that the central government in China will continue to support investment in major industries like telecom, consumer electronics manufacturing, and transportation. China cannot cut back much on infrastructure building because that would leave it a quart low when the economy begins to rebound. The government will, in essence, support strategic imports from overseas even if exports from the country falter.
There are few benefits to having a central political and economic authority, but during the current circumstances, the Chinese government may actual support the growth of goods and services in the West. It is about time that the world's most populated country returns the favor.
Douglas A. McIntyre
In a reorganization of China's telecom industry, which would be almost unimaginable in the West, the country plans to merge two of its largest mobile companies, China Netcom (CN) and China Unicom (CHU). The new firm will be issued on of the three high-speed wireless licenses which the government plans to grant.
China's two largest phone companies, China Mobile (CHL) and China Telecom, will receive the other two contracts.
According to Reuters, the 3G development will "unleash billions of dollars in spending for network gearmakers." Those companies would include Nokia (NOK), Nortel (NT), Ericsson (ERIC),and Motorola (MOT).
The news many also be a benefit to handset makers as they rush to offer products for the new 3G networks. Apple (AAPL) has still not found a home for the iPhone in China. More competition among carriers will give it a greater chance to strike a good deal. A new market could also give some aid to Motorola's flagging handset sales and to rivals Samsung and Sony Ericsson.
Douglas A. McIntyre
Synthesis Energy Systems, Inc. has filed to come public today via an initial public offering, and it will take the proposed ticker of "SYMX" on NASDAQ. The two underwriters listed in an offering for up to $100 million are listed as JPMorgan and Deutsche Bank Securities.
The company builds, owns and operates coal gasification plants that utilize the company's own proprietary U-GAS® fluidized bed gasification technology to convert low rank coal and coal wastes into higher value energy products. This is for transportation fuels and ammonia.
The company is Houston-based as far as corporate headquarters and it has US-operations under development in West Virginia. In China, it has headquarters in Shanghai, and has operation in Zaoahuang City now and under development in the Henan Province. It also has operations being constructed in Inner Mongolia. You will want to read the prospectus if you are interested in this one because its operations are mainly operating interests in ventures.
As much of the current gasification projects are under development, its revenues for the 9-months ended March 31, 2008 were $39.879 million and the development and pre-operational costs have this one in the red as far as profits are concerned.
You can join our open email distribution list to hear about other IPO's, secondaries, financings, spin-offs, and mergers.
Jon C. Ogg
May 20, 2008
It is not enough that the cost of food is moving up by double digits in China. Now other components of the economy are showing even worse inflation.
In April, factory and property spending rose 26% in the world's most populated country. The banks in the country are still tightening credit, but, so far that has not done much yet. According to Bloomberg, one senior Chinese official said ``New local government officials who took office in March are politically motivated to expand their local economies.''
That motivation could do a lot to hurt China's GDP growth. Not only is the country's middle class being squeezed by rising food costs, but now the building industry may find that rising demand for the supplies required for commercial construction may make that process much more expensive.
The inflation pressure in the country is likely to meet falling demand for the nation's goods as Western economies slow and import less from China. If that happens, there will be a partial economic collapse in the country. No wonder the Shanghai Composite is down 50% from its peak last October.
Douglas A. McIntyre
ShengdaTech Inc. (NASDAQ: SDTH) announced that it will plans to offer an aggregate of $100 million of senior convertible notes due 2018, in an offering to qualified institutional buyers under a 144A placement. Neither the notes nor the underlying shares will be registered in this offering.
The notes will bear interest and be convertible into shares of ShengdaTech's common stock at terms and a conversion price to be determined at the time of pricing of the offering.
Shengda is a manufacturer of nano precipitated calcium carbonate (NPCC) in the People's Republic of China and a manufacturer of coal-based chemical products in Tai'an City, Shandong Province. Its NPCC products are used in paper, paints, rubber, plastic, tire, and polyvinyl chloride building materials industries.
The company expects to use approximately $56 million of the net proceeds from the offering of the notes to expand its NPCC production capacity; and it plans to use the remaining proceeds for potential coal-based chemical acquisitions, strategic investments and to fund working capital requirements.
As far as what the $100 million means to the company, its market cap at todays close of $9.31 was $504 million. Its 52-week trading range is $3.95 to $15.57.
You can join our open email distribution list to hear about other secondary offerings, IPO's, secondary offerings, special financings, mergers, spin-offs, and other special situations.
Jon C. Ogg
May 14, 2008
Chindex International Inc. (NASDAQ: CHDX) is seeing shares under pressure this morning after it filed last night for a secondary offering of up to $100 million. The filing is for the company to sell shares of common stock, warrants, and rights. Some will come from the company and some may be sold by shareholders.
No underwriters have yet been named according to the preliminary prospectus. Chindex is US-based, but primarily operates in China and Hong Kong.
The company put the use of funds that will receive for general corporate purposes, including expansion of our Healthcare Services and Medical Products divisions. The company will not receive any proceeds from shares being sold by existing shareholders.
You can join our open email distribution list to hear about other break-ups, IPO's, secondary offerings, special financings, mergers, spin-offs, and other special situations.
Shares are down over 4% in early trading at $20.96 and its 52-week trading range is $10.17 to $29.20. The current market cap is about $261 million.
Jon C. Ogg
May 14, 2008
Inflation is still running like a brush fire inside China. Prices moved up 8.5% in April compared with the same month a year ago. The its a pittance compared to the rise in food costs, up 22.1% last month.
The central government also reported that exports are not growing. The slowdown in the West has finally ending the party in China.
The world's most populated nation is a microcosm, albeit a huge one, of the trouble about it hit other large economies. Food prices are being driven by high agricultural product prices while global trade is being battered by flat of falling GDP in some of the largest nations.
China actually has it better than many countries. Its government still underwrites the price of fuel. That is a luxury not found elsewhere.
The world food situation is, for the time being, hopeless. Production from countries like the US is being compromised by the need to create alternative fuels. In the third world, farmers being driven off of their land by political turmoil which has turned to civil war. At the same time, the world's malnourished population is spiking up sharply.
Inflation has become the great enemy of economic growth in China, trumping a slowdown in GDP. Prosperity among the new middle classes in the country has been pumped up by rising pay checks. Now, that income is being undercut by the cost of food staples. In the US, a similar process is taking place, but the main culprit, at least for now, is the cost of fuel.
Somewhere is the future, the lines cross. China cannot underwrite fuel costs forever. Food inflation will be joined by gas and diesel price inflation. In the US, while the huge engine of agriculture has muted increases in many items at the grocery store, demand for farm commodities overseas and ethanol production here will drag food prices up at a rate which could easily reach double digits.
There is a word for rising prices and falling GDP, but it has not been used much in the last thirty years.
Douglas A. McIntyre
There is nothing like having cash when no one else does. The few large sovereign funds have big bags of money and have used them to pick up assets in the US and UK, especially shares in big banks and brokerages which have been hit by subprime mortgage losses. Congressmen and regulators have tried to get the funds to promise that they will not invest to get "political" leverage. So far, that has not worked well. It never does when one party in a negotiation has no leverage.
To make the point that big money from overseas will not be shackled, the head of China's new fund say that the present global financial mess will make his job easier. "The current international market turbulence has produced unprecedented investment opportunities," said Lou Jiwei, head of the $200 billion sovereign wealth fund, established last September to earn higher returns on part of China's vast official foreign currency reserves, writes Reuters.
That does not make him a bad person, just an opportunist in the best sense of the word.
The new fund did say that it will not seek control of the companies into which it puts money, but everyone knows full well that if the problems at financial firms continue the largest investors with the most money will also have the most influence. And, why not?
The sovereign fund phenomenon makes an odd and perverse circle. China and the Middle East make money on the US market and then invest that money back into America to buy assets which have been driven down by hard times. They risk losing their money if things get worse, but their huge capital bases put them in a good position to take some losses.
China now looks at US financial companies as a vulture looks at carrion. These firms are vile now, but in the economic cycle, that is almost certain to change.
Douglas A. McIntyre
WuXi PharmaTech (Cayman) Inc. (NYSE: WX) announced today that it has decided to postpone its follow-on offering of American Depository Shares "due to current market conditions and share price."
Credit Suisse Securities and JP Morgan Securities were lead underwriters and joint book-runners for the offering that was originally filed April 4. Some of the shares that were being sold were for existing shareholders and some share sale proceeds were to be used for existing factory expansions and for general corporate purposes.
The Chinese and U.S.-based pharmaceutical, biotechnology, and medical device "outsourcing" company is trading up 2% at $19.10 in early morning trading and when the offering was first announced, WuXi was trading at about $23.50. WuXi has a 52-week range of $17.43 to $45.65.
You can join our open email distribution list to keep up with other developments in secondary offerings, IPO's, mergers, spin-offs, and other specialty financings.
Rachel Lopez
May 6, 2008
Google (GOOG) rules the search world in all but one important country. China not only has the largest population in the world, it has the largest number of people online totaling 221 million users. It passed the US last month for total number of internet citizens. At some point China could have 500 million people on the worldwide web, more than double the US.
Google's share of the search market in China is only 25%. Local search engine Baidu (BIDU) has 60%.
Baidu is a very small company when put along side Google. Revenue at the Chinese company many hit $200 million this year. Operating income might be $60 million. Google's revenue will be well over $20 billion this year. Operating income should be almost $10 billion. Still, Google can't make progress in China.
Baidu has a market cap of $12 billion. Microsoft was willing to spend $47 billion on Yahoo!. The US portal is the larger company, but Baidu's revenue is moving up at the rate of almost 100% a year.
Even if Microsoft buys AOL or MySpace, it picks up modest market share in search by spreading its offering across a larger number of users But, if the online community does not like the Microsoft search function moved onto properties which it might buy, consumers are like to turn back to Google anyway.
It is not clear what government hurdles Microsoft would face making a move to buy Baidu. The Chinese company has started a version of its successful business in Japan. That gives it another beach-head. With Microsoft's money, it could move into a great deal more of Asia. And, that region is the future of internet growth.
Douglas A. McIntyre
Today, we have seen what may be one of the few special purpose acquisition companies, or SPAC's, see a return of capital with a proposed deal voted down by shareholders.
Shanghai Sentry Acquisition Corp. (AMEX: SHA) just announced today that its annual and extraordinary meeting of shareholders was held and shareholders have voted down its proposed acquisition of Asia Leader Investments Limited.
Under the terms of the charter, the company is not permitted to pursue any other transactions and will shortly begin the process of liquidating and dissolving itself in accordance with the charter. Applicable laws will result in the amount held in its trust account (together with interest) will be returned to the public shareholders. No payments will be made in respect of the outstanding warrants or to any of its initial shareholders in the initial public offering.
This company was formed in April 2006 and it raised $115 million through an initial public offering. Back in February, this company terminated one acquisition to pursue the other and this vote had been delayed.
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Jon C. Ogg
April 29, 2008
The shell game of controlling gas and diesel prices in China is not terribly clever, but it has worked. The government and the oil & refinery companies which it controls buy crude and sell the by-products to consumers and business well below market.
Cheap gas helps drive the Chinese GDP. The trucking industry is critical to moving goods around the country and to ports for shipment overseas. Only a tiny faction of the population owns cars. That is changing as household income rises, especially around the big cities. China has local car-makers, but it is a rich market for vehicles built by GM (GM), Toyota (TM), VW, and most of the other large global car companies.
The large difference between crude prices and gas is beginning to show up more prominently in the P&Ls of China's largest oil operations. According to the AP "China's second-biggest oil company, Sinopec, says its first quarter profit fell 69 percent due to government controls that bar it from passing on record crude costs to consumers." The firm is offers some subsidies to make up the difference, but they are not enough.
Over the last six months, shares in PetroChina (PTR) and China Petroleum (SNP) ,as Sinopec is known, are well down. SNP has fallen by 30% and PTR by 40%. Shares of Exxon (XOM) are flat over that period.
Public shareholders are being punished for the government policy, but it will not end there. If the economy in China slows, the treasury will find it harder and harder to finance the underwriting of gas prices. China may have to pour more money into the market to support its actions. Or, it may have to let the price of fuel move up.
In a country where inflation already borders on double digits, an oil crisis is brewing. It will be not long until it will moves out into the open.
Douglas A. McIntyre
CNN commentator Jack Cafferty is a insolent fellow. He commented about the Chinese saying "They're basically the same bunch of goons and thugs they've been for the last 50 years". Nice touch.
Cafferty was upset about all of the lead-painted toys and other dangerous products that the Chinese are sending to our shores.
The Chinese struck back. A group of people from the mainland have sued CNN for $1.3 billion, $1 for each person in the country. According to Reuters "The case against the Atlanta-based cable channel, its parent company Turner Broadcasting and Jack Cafferty, the offending commentator, comes after 14 lawyers launched a similar suit in Beijing." The Chinese government called the action "spontaneous activity by Chinese civilians".
The move does seem a little unfair. None of the "citizens" in the US have sued Chinese factories or companies for tainted components in blood-thinner Heparin. That has killed over 80 people. And, the parents of the children who ate some of the lead-painted toys shipped here have been good enough to keep their attorneys out of the fray.
The Chinese people may simply be more passionate than their counterparts in the US.
The question is still open about how those $1 bills are going to be distributed to 1.3 billion people.
Douglas A. McIntyre
Baidu.com, Inc. (NASDAQ: BIDU) just posted earnings of $0.67 non-GAAP EPS on $81.9 million revenues. The estimates for the Chinese online search engine leader from First Call were $0.60 EPS on $75.39 million in revenues. Traffic acquisition costs (TAC) was $10.9 million.
Baidu.com also gave guidance on a preliminary basis for the next quarter with revenues of $111 to $114 million. Next quarter estimates from First Call are $0.91 EPS on $100.6 million in revenues.
As of March 31, 2008, Baidu's cash and equivalents were $237.6 million. Its online marketing customers during the first quarter grew to approximately 161,000, an increase of 3.9% sequentially.
Shares fell 2% today after being higher and closed down at $342.00. The shares are up about 1.6% after this report, probably as traders try to assume a higher TAC associated percentage and as they try to figure that into the equation. Depending on that conference call, this reaction could be far different as we noted that a $250.00 straddle earlier today cost more than $53.00 because of a $100.00 move since March.
Unfortunately, its conference call is set up for 8:00 PM EST.
Jon C. Ogg
April 24, 2008
This evening we'll get to see earnings Baidu.com, Inc. (NASDAQ: BIDU). The estimates for the Chinese online search engine leader from First Call are $0.60 EPS on $75.39 million in revenues. Next quarter estimates are $0.91 EPS on $100.6 million in revenues. Estimates for fiscal Dec-2008 are $4.02 EPS on $433.6 million in revenues.
Analysts have an average price target north of $343.00, and Baidu.com’s 52-week trading range is $98.45 to $429.19. Today's $350-ish prices are above the street target, yet still well off of highs.
Baidu.com trades above both the key 50-day moving average of $268.90, and above the more important 200-day moving average of $285.18. Shares are up more than $100.00 since mid-March, so it would be hard to believe that a "meet estimates and in-line guidance" isn't going to cut it.
The more interesting aspect of today is what options traders are thinking. Based upon a $350 pricing it appears that options traders are braced for a move of more than $22.00 in either direction. While we do no make recommendations for options, you can see an example of how much volatility is in the stock. Right now traders can "sell VOL" with a straddle sale and net in approximately $53.00. We could see a large move based upon earnings and guidance today.
With a forward P/E of 87+ and its market cap of $roughly $12 Billion, its forward revenue multiple is still over 27-times forward revenues.
Unfortunately, its conference call is set up for 8:00 PM EST.
Jon C. Ogg
April 24, 2008
Based on estimates from the Chinese government, the most populated country in the world now has 221 million people online. That puts it even with the US. Of course, the market is growing faster in China, so it should pull wall ahead of America by the end of the year.
The news is important for US internet companies. Google (GOOG), Yahoo! (YHOO) and MSN (MSFT) cannot count on their domestic market to produce a bigger pie each year. They are going to have to fight over what is on the American table. The promise of China is that it has 1.3 billion people. Many will never make it online, but a lot of them will.
Standing in the way of the American search companies and portals are the locals which include companies like Baidu (BIDU) and Sina (SINA). Baidu has 60% of the search engine share in China. The incumbents are not going to give ground easily. That is very tough news for firms like Yahoo! which are going to have to look outside the US for their future growth.
The good news is that the Chinese internet population is getting much bigger. The bad news is that the online audience may not want US products.
NIH. Not invented here.
Douglas A. McIntyre
There were two things that happened in China, both of which should be loved by U.S. and most country investors.
First and foremost, China saw a rally in Shanghai by more than 9% on the local markets after the Chinese lowered a stock trading tax from 0.3% down to 0.1%. MarketWatch noted that this was meant to take some air out of its market last year after major surges had been seen. After the Shanghai market had fallen by 50% from highs, they probably decided to keep confidence from eroding further and declare "mission accomplished."
The second issue is that China's sovereign wealth fund, The China Investment Corporation, has kicked up the amount it can invest in entities and assets abroad. According to a report out of the FT (and elsewhere), China’s $200 Billion sovereign wealth fund now has about $90 Billion to purchase assets and entities. Initially it had about $66 Billion, but the government decided it would need less to restructure its Agricultural Bank of China, its China Development Bank and its other struggling state-owned financial institutions.
It looks like the funds will mostly be given to external managers for foreign equities, fixed-income, and in alternative investments that pertain to private equity funds, hedge funds and possibly commodities.
The ordinaries market in Shanghai rallied some 9% today. The extra sovereign wealth funds will be good for whichever country those funds end up in, while the U.S. and other countries might want to note what taking out "transaction costs" can do for investor confidence.
Jon C. Ogg
April 24, 2008
There is a fairly widely held theory that moves in the stock market are a good predictor of what will happen in the broader economy two quarters later.
The Shanghai Composite, the largest measure of Chinese stock prices has dropped by over half since its October high of over 6,000. As The Wall Street Journal points out "It is crimping expansion in the country's nascent financial sector and may put a squeeze in corporate coffers."
The drop in the index is signaling something much worse than a dip in the IPO market. The Chinese economy is facing serious problems and they cannot be fixed by the central government. Their magnitudes are too great.
Inflation in China is said to be 8%. That number is laughable. Food prices are moving up closer to 20%. If the Chinese government did not subsidize the price of gas and diesel, the cost of these would probably have gone up by at least 50% this year. China's big oil companies buy crude on the world market, often for amounts over $100. Gasoline prices in the country are among the lowest in the world. China needs to keeps cars and trucks on the road to keeps its economy humming. The artificial dementing of fuel supply and demand cannot last forever
The larger issue in China, one that it leaders are beginning to acknowledge, is that the slowing economy in the West is going to hurt
