There wasn't much in 2009 that went well for the Capitalist Roader Fund. For the most part, we watched from the sidelines as the Shanghai Composite Index soared nearly 80% from its end-of-2008 close. The fund, in contrast, ends the year up about 12% from December 31, 2008.
What went wrong? In a market giddy with liquidity thanks to huge amounts of new bank lending, we made the cardinal error of playing it safe. When the ill-starred (for us) Anhui Conch Cement (600585.SH) began rising at the beginning of the year, we decided to sell.
By that point, we figured, the market had already priced in a boost from government stimulus spending on infrastructure, and we didn't want to take the risk of losing even more. Furthermore, it wasn't at all clear in February that the stimulus package would prove as successful (at least for the short term) as it did – or that so much money would be funneled into the stock market. In that sense, we had both less and more faith, respectively, in the government's ability to control economic activity in China.
For Industrial and Commercial Bank of China (ICBC, 601398.SH), now trading at a slight premium to when we bought in, the situation was slightly different. Our skepticism at the prospect of a quick turnaround of the economy continued through March, and we didn't expect much from the Shanghai market. We sold, hoping to decouple ourselves from the broader market. We certainly accomplished that, but not in the way we had hoped. As the market rose, ICBC slowly regained its losses, and is now trading at a premium to where we initially bought in.
Playing it safe does have its occasional rewards, however, as with the small profit we netted with Jiangsu Expressway (600377.SH), getting out before baseless speculation was exposed a precisely that. But that remains our only profitable investment to date. China Vanke (000002.SZ) is trading down 10.12%, and China COSCO Holdings is down 3.76%
We enter 2010 with a great deal of uncertainty. Yes, the stimulus package appears to have worked, but at what cost? Is the market going to continue to rise based on the continuation of loose monetary policy? Are we seeing asset bubbles, and if so, how and when will they pop? How will Beijing manage a gradual tightening, and how will the state of economic recovery overseas affect its plans?
Uncertainty, yes – but also with anticipation. No one ever said the capitalist road would be smooth.