Capitalist Roader Fund:
Despite a holiday schedule that makes us feel like we need another holiday, there's no denying that the National Day break did us some good. Investors returned in cheerier spirits, and a dose of positive economic news (and talk of sovereign debt upgrades) has helped to give the domestic equity market the spark it has lacked over the past several months.
The Shanghai Composite Index (SCI) is now back up above 2,800 points, and 3,000 looks well within range. Regrettably, the Capitalist Roader didn't do much to take advantage of the recent rally, but a more robust-looking market is enticing us to look for new investment opportunities. Producers of agricultural commodities and precious metals have been doing nicely in recent weeks: Cotton and gold, in particular, have been on the rise.
Of our own holdings, Joyoung (002242.SZ) is trading at a small premium to the price we bought in, although it suffered a sharp fall on Thursday. Huaneng Power (600011.SH) and China COSCO (601919.SH) continue their gradual climbs, more or less tracking the index.
At the close of trading on Thursday, the Capitalist Roader Fund was down 38.1% from June 3, 2008. The SCI was down 16.2% from June 3, 2008.
Red Dragon Fund:
The A-share market surged for six trading days in a row following the holiday, with the SCI testing the 2,900 level. This is definitely a fund-driven rally. New restrictions in eight major cities permit potential buyers to purchase only one new house each and prevent banks from issuing loans to buyers for third house purchases. We expect these policies to hurt the market.
We think the peaking of property prices will squeeze lots of money out of the housing market before investors swarm into the equity market when they realize their money has nowhere else to go.
Meanwhile, hot money inflows are up as expectations increase for long-term currency revaluation. The SCI is consolidating near 2,900 points – many stocks have dropped, while index-weighted ones have edged up. We expect an upside before the index challenges the key 3,000-point level, and we're ready to pick up some stocks in the coming days.
The Red Dragon Fund launched in August 2005 and is run by an industry professional. The Capitalist Roader Fund launched in June 2008 and is run by China Economic Review's editorial team. Both funds are run solely as an editorial exercise.