Best,of,CER,Alpha|Best of me

　　Citic Securities is weak despite possible US market entry 　　February 14, 2012 　　Citic Securities has applied for a securities license that would allow it to raise funds in the US for Chinese companies. As China’s largest brokerage by market capitalization, Citic Securities has systemic advantages – connections in a word– that may help attract companies seeking to raise funds in the US. But the firm still has to clear the hurdles of receiving a license and initiating operations, and it is too soon yet to say that will happen. Meanwhile, Citic Securities’ fundamentals in China are far from rosy. The firm has lost market share in China, divesting from its stakes in China Asset Management and China Securities, and it fails to provide complete coverage of China by not offering services in several provinces. The takeaway: The news of a possible US entry fails to outweigh weak fundamentals. Investors might consider shorting Citic Securities (6030.HKG).
　　Shipping companies shorting targets on overcapacity and weakened China demand
　　February 13, 2012
　　The Transpacific Stabilization Agreement (TSA), an industry group representing container shippers, has proposed across-the-board rate hikes of at least 40% by May. Container shippers experienced operating losses in 2011 on transPacific trade, much of which is attributable to weakening Chinese exports. This year may not be much better, with Chinese export manufacturing continuing to contract in January and a shaky outlook. The TSA is seeking to return its members to profitability by essentially acting as a cartel to set prices. This may work briefly, supposing antitrust regulators around the world look the other way. But the fundamentals – oversupply of shipping capacity and weak demand – make it likely that some shippers will break ranks as the year progresses, rather than risk missing their targets. This is particularly true of those container shipping companies due to receive extra ships this year as they will struggle to fill them. This will take some time to come to pass, however, and a nearer term play might involve dry bulk shippers, whose market is more fragmented with less of a chance to coordinate on price.
　　The takeaway: Investors might consider taking short positions on dry bulk shipping such as China Shipping Development (1138.HKG) and Pacific Basin Shipping (2343.HKG) in the short term, while watching those more leveraged against container shipping such as China Cosco Holdings (1919.HKG).
　　Power shortages a boon for China equipment makers
　　February 8, 2012
　　Mainland China will see power blackouts in 2012 due to a projected 30-40 gigawatt electricity shortage, according to the industry association China Electricity Council. A 30-40 gigawatt shortage is smaller than the 50 gigawatt shortage some had foreseen but nevertheless emphasizes China’s gap between supply and demand for electricity. China’s rapidly growing economy means ever-more consumers are plugging in appliances, and fast urbanization is contributing significantly to electricity requirements. The impact of the shortage on Chinese power companies is unclear, in that they must spend to expand capacity and hold to strict government price controls. But one thing is sure: Power plants will need to more equipment to expand capacity. The takeaway: Consider buying companies that make power equipment, including Harbin Power Equipment (1133. HKG), Shanghai Electric Group (2727. HKG) and Dongfang Electric (1072. HKG).
　　China pharma companies a buy as sector poised to grow
　　February 7, 2012
　　Shanghai Pharmaceuticals Holding has announced that it will expand into biopharma with the purchase of Changzhou Kony Pharma. China’s pharmaceutical industry, and biopharma in particular, is likely to continue to grow strongly. China pharma companies are unlikely to provide much competition for Western companies when it comes to developing new drugs for the global market, but they can compete on cheap, high-volume drugs. And then there is the domestic China market. State-owned companies like Shanghai Pharmaceuticals are not the most dynamic in the pharma sector, and Shanghai Pharma has been charged with having management that lacks focus and drive. But government subsidies and other built-in advantages of the China market make state-backed pharma companies a reasonable long-term bet.
　　The takeaway: Investors might consider buying Shanghai Pharmaceuticals (2607. HKG), which will benefit from the overall sector growth. But it may also be worth considering plays on more dynamic, bio- pharma-oriented China companies like Sino Biopharmaceutical (1177.HKG) and small-cap 3SBio (SSRX.NASDAQ).
　　Go long on government-connected Chinese property developers
　　February 3, 2012
　　Chinese house prices in January posted their poorest results in at least a year, with none of the 70 cities surveyed by officials recording gains. The declines in prices in many of these cities were small, but they make it clear that Chinese real estate is not the one-way bet it once was. However, China is not in danger of
　　the long-term stagnation seen in Japan. High population density in eastern and central China, ongoing urbanization and the basic desire to own property make it unlikely for the bottom to fall out of the market entirely. China’s 8-10% GDP growth additionally will help to hold up the property market. The market’s nearterm prospects look rocky, so CER Alpha believes a longer-term play may be in order. Larger developers will survive and may come out stronger in the long-run from industry consolidation as smaller players suffer. Those with government connections are almost sure to survive.
　　The takeaway: Consider a longer-term play on large, state-connected developers like China Resources Land (1109.HKG), Franshion Properties (0817.HKG) and China Overseas Land & Investment(0688.HKG).
　　 CHINABUSINESS REPORT
　　A survey by Shanghai’s American Chamber of Commerce depicts a business community that is surprisingly integrated with the Chinese labor force and market Foreign businesses in China are increasingly confronted with the same types of challenges they face in more mature markets, such as rising costs, HR constraints and increasing competition, according to a survey by the American Chamber of Commerce in Shanghai of its members in 2011. The survey, which was conducted through a partnership with global consultancy Control Risks, indicates that:
　　2011 was a good year, but not as good as 2010. Revenue grew year-on-year for 80% of surveyed companies, compared to 87% in 2010. Only 51% said that operating margins grew from last year, compared with 66% in 2010 – a sign that rising wages and raw materials costs are squeezing businesses. Expectations remain positive for 2012, though they have been tempered by the global economic slowdown: 37% of companies expected to increase their investment in China by at least 15% next year, down slightly from the year before.
　　An increasing number of companies are in “China for China.” The country is the number one global priority for 18% of surveyed companies and among the top three priorities for more than two-thirds of respondents. The great majority of companies (86%) say they produce or source goods in China for the China market, while 71% are designing products or services to sell in China. A majority say that over three-quarters of their senior management are Chinese nationals.
　　China is a “maturing” market. Half of surveyed companies have been in China for more than 10 years, while 80% have been here more than five years. More companies said they were concerned with “business challenges,” such as rising costs, HR constraints and increasing competition, than the “regulatory challenges” for which China is often maligned, such as bureaucracy, an unclear regulatory environment and a lack of government transparency.