E-House Holdings (EJ), despite stellar earnings, seemed to go into a tailspin a few months ago due to fears of a percolating real estate bubble in parts of China. While the pace of news stories on that front has only increased of late (NYT - Skyrocketing Prices May Point to Real Estate Bubble in China) the stock has rebounded with the return of speculators into the US-listed Chinese small and mid cap stocks the past few weeks. It certainly seems that, based on these corporate results, the stock was unfairly hit the past few months, once more showing the market is less about reality and more about perception of reality. Companies in far worse fundamental shape have been skyrocketing for months without a care in the world. (Click to enlarge)

Earnings reports for both E-House, and its subsidiary China Real Estate Information (CRIC) were released yesterday and were quite good. The full report for E-House is available here.

China reported stronger export and import figures for February than expected, with the net result of a smaller than expected trade surplus.

In fact, February's trade surplus of $7.6 bln is the smallest in a year and a bit more than half of the January surplus. This is consistent, however, with an under-appreciated development that we think is important.

China seems to be the engine of global growth these days. The country has managed to turn itself into the manufacturing facility of the world, producing almost everything that consumers in the western world need. It is being said that investing in China in 2010 is similar to investing in USA in 1910 or investing in the UK in 1810. Whether this turns out to be true or not, the Chinese economy has managed to expand rapidly over the past decade, fueled by demand for cheap goods which its skilled and low-cost labor force produces for worldwide markets. While there are plenty of ways to invest in the Chinese economic growth, including Chinese listed ADRs traded on the NYSE or Nasdaq, few have a long history of dividend increases, which would make them an interesting income play.

Most global companies do have a presence in China however. Some of these companies have had operations in the country for years, and have also developed a strategy for expanding their business there, which would provide strong earnings and dividend growths for the future. Some of these companies include well known dividend stocks such as McDonald’s (MCD), Coca Cola (KO), Wal-Mart (WMT) and Philip Morris International (PM).

In our first edition of Expert Interview, Y&I is very excited to bring you the insights of Puru Saxena, founder of Puru Saxena Wealth Management. Based in Hong Kong, Puru has his finger on the pulse of the East markets, and provides investment advice and asset management for numerous clients. As a highly regarded member of the finance community, Puru is a regular guest on various media such as CNN, BBC, Bloomberg TV, CNBC, RTHK, NDTV, TVB Pearl … need we say more?

There is a movement afoot to build a case for filing a complaint against China at the World Trade Organization, alleging that China's efforts to censor the Internet are in violation of the terms of its WTO membership, which Reuters' Chris Buckley begins to examine here.

As I am not an attorney, I won't comment on the law involved - I'll leave it to Dan Harris and Stan Abrams to do that. But the law is not the only issue here. Perhaps more important is whether, even if China were to lose the case, the rest of the world would be willing or able to enforce it.

China surprised to the upside again when it reported its trade figures on Wednesday. Exports were up 46% year over year to US$94.8 billion against consensus estimates for a 38% rise. Imports rose 45% year on year to US$87.2 billion against consensus forecasts, also for 38%.

As the chart below illustrates, the figures show a slight pullback in the strong bounce-back China had been seeing. However much of this pull back is related to the Chinese new year holidays (Chinese new year, or spring festival, fell on the 14th of February this year). It is likely that trade stats will show further improvement in the March numbers as the journey back to trend continues.
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Chinese car manufacturer BYD (BYDDF.PK) is hardly a household name, but it plans on being the largest auto company in the world by 2025. Ambitious? Yes. Impossible? Warren Buffett was sufficiently impressed to hand over US$230 million for a 10% stake in BYD in 2008.

The company has leveraged an early expertise in battery technology to evolve into one of the global frontrunners in the market for electric vehicles. Many, including myself, believe this market represents the green future of automotive transportation.

I get paid in US dollars, but live on RMB. So as a matter of course, my morning routine includes a glance at the current exchange rate between the two currencies. That routine has been boringly predictable since China pegged the RMB at 6.83 to the dollar in July 2008.

Although the policy makers in Beijing had been allowing the RMB to slowly appreciate for several years—it was 8.15 RMB to the dollar when I moved to China in July of 2006—the peg was an obvious protectionist move to help stem the flight of foreign buyers of Chinese goods when the Western economies began to edge towards recession. And Western policy makers, who are keen to restore demand within their home markets, have been crying foul ever since.

I am loath to rent. I just can’t stomach the idea of paying for someone else’s mortgage. When I first arrived in China back in 2006, I fully intended to buy property once I got the lay of the land. But when I started looking, I quickly realized that residential real estate was pricey, even by Boston standards.

And since then, it has only gone up. Conversely, rents are very reasonable and have increased only modestly. Renting here always seems to make more sense than buying. Anyway, after nearly four years in China, I spent the last two weeks looking for a new apartment to rent in a better part of town, which has opened my eyes to what appears to be a frighteningly large bubble. While I haven’t done any formal research, there is a tower of anecdotal evidence that suggests that the current market prices of residential real estate are unsustainably high, at least in Shanghai and other first-tier cities.

The inscrutable Chinese are hardly likely to inform the world that they are on a gold buying spree for fear of sending the gold price through the roof before they can finished their acquisition plans.

China’s gold reserves amount to 1,054 tons, ranking fifth in the world, said Yi Gang, central bank vice governor on Tuesday. China is the largest gold producer in the world, with more than 300 tons of gold produced annually, all of it consumed locally and not exported.

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With yesterday’s explanation of exchange rates, we can now examine investment opportunities resulting from a Chinese yuan increase. My focus will be on Chinese company stocks.

In line with our theme to identify bargains based on a set of criteria, we have come across Soko Fitness (SOKF.OB), a leading operator of fitness clubs and spas in Northeast China.

Data Ended 3/8/2010

Homegrown credit risks look to come back home to roost. I am actually shocked the following development didn't get more traction in the mainstream media. The recent announcement by the Chinese finance ministry to nullify all guarantees for local governments for loans taken by their financing vehicles, and its plan to issue rules banning all future guarantees by local governments (see Bloomberg article), fuels (even further) our concerns about credit risks on such loans.

The primary concern is that most of these were non-recourse loans to provinces, municipalities and counties through shell companies, known as Urban Development Investment Corporations (UDIC). Some went to fund projects backed by assets, such as commercial real estate, others to projects with future cash flows such as subways and toll roads. Still others are social in nature and backed only by an implicit guarantee of the City/Provincial Investment Holding Corporation (CIHC).

The Chinese have recently released statements indicating that they are not interested in buying gold and that they plan on remaining "responsible investors" in U.S. treasuries. China is not known for informing the market about what it is actually doing. It instead has a long history of keeping its actions carefully hidden. It would therefore be reasonable for investors to assume that China is buying gold and selling U.S. treasuries.

The case for China doing the opposite of what its official statements indicate goes well beyond mere assumption. When TIC (Treasury International Capital) data was released in November and December, the numbers indicated that China was a net seller of U.S. treasuries. This potentially explosive news got little mainstream media coverage. China also announced in April 2009, that its gold holdings were 76% higher than had been previously reported earlier in the decade. China didn't mention it was buying this extra gold while it was doing so. Don't expect it to announce its gold purchases in the future either.

HMIN)" hspace="6" vspace="6" />It’s no secret that the Chinese economy has experienced tremendous growth – even during the global financial crisis. A demographic shift towards the middle class has bolstered demand for goods and services, and we are seeing a wide portion of the population moving towards China’s rapidly growing cities. However, as with any rapid economic expansion, economists are beginning to wonder just how fast is too fast. It seems that there is serious potential for China to stumble and lead the globe back into an extended economic slump.

The Chinese equivalent of the Federal Reserve appears to have concern with the situation as they have begun tightening reserve requirements for banks which essentially reduces the amount of capital available for lending purposes. The moves have been minor in nominal terms, but the banks are getting the message… “Cut back on lending and get your books in order.” No one wants to see a repeat of the US banking crisis from 2008.

SkyPeople Fruit Juice (SPU) is an unknown, yet, exciting juice, beverage and fruit products producer in China. The company was recently listed on the AMEX exchange a few months ago and the story has begun to get discovered by an institutional base of shareholders. SPU has an experienced and polished management team in place. In the past three years, management has doubled its revenues from $29.3 Million in 2007 to an expected $58-$60 Million in 2009. With an improved industry outlook, record sales and earnings, and a capacity ramp-up underway that will lessen the company’s seasonality, we feel that SkyPeople has hit an important inflection point.

We are bullish on SPU for a number of reasons. For those looking to get in on a long-term secular trend, the concentrate juice market has started growing once again worldwide. This market has big growth potential in China and SkyPeople is poised to grab market share from its more entrenched competitors in the coming years. Due to its ability to access important raw materials and because of its low-cost manufacturing operation, SPU has inherent advantages over its bigger competitors.

China's CNOOC Ltd (CEO) and France-based Total SA (TOT) have recently submitted their development plans for three Ugandan oil blocks to the Ugandan government. The government's decision is expected before the end of this month, as per Dow Jones Newswires.

More than 1 billion barrels of oil have been discovered in these blocks. U.K.-based Tullow Oil, with a 50% ownership in two of these blocks and 100% in the third, has selected CNOOC and Total as potential partners for their development. Tullow is currently in the process of getting the Ugandan government’s nod to purchase the remaining 50% interest in the first two blocks from U.K.-based Heritage Oil.

Expected Chinese yuan improvement could provide us with an investment opportunity. However, before going there, I thought a review of challenging exchange rate math would help ensure full understanding.

To start, if I said I just bought gasoline for $3.00 a gallon, you’d know exactly what I meant. And if you saw that gas had risen from $3.00 to $3.30, you’d know that there had been a 10% increase. These pricing and percentage change conventions are ingrained into our everyday thinking. Now let’s enter the currency exchange world…

As expected, WuXi PharmaTech (NYSE: WX) reported 2009 net revenues of $270 million, an increase of 7%. Net income climbed to $52.9 million compared to a loss of $64.2 million in 2008, when the company took a significant $49.3 million writedown of its US-based biologics manufacturing business, which was part of its AppTec acquisition. Revenues matched analysts’ expectations, while earnings were slightly below forecasts.

For 2010, WuXi PharmaTech expects revenues to rise a further 15-19% to $310-$320 million. The company says its China-based Laboratory Services business and an improving Manufacturing Services business will both contribute to the growth. The new toxicology facility at Suzhou, however, will create pressure on margins during the second half of the year as WuXi ramps up operations in the lab. The company does not expect the tox lab to contribute meaningful revenues during 2010.

By Platinum Tiger

U.S.-listed Chinese small caps overcame generally listless market conditions on Monday and rallied to their second day in a row of two percent-plus gains, finishing the day at their highest level since January 15th. Gainers outpaced losers in the session by a ratio of more than 2:1, with pharmaceutical stocks leading the charge with a nearly 3 percent average gain. Chinese small caps have now advanced nearly 15 percent for the year thus far, and the sector looks poised to continue its gains in the coming weeks.
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New all-time highs were reached on Monday by 7 of the 35 stocks in our China OTC Player index, including AMCF, CAHS.OB, CELM], [[CT]C, JNGW.OB, LLEN and SOKF.OB. Other noteworthy results for the day included a 37 percent gain for CHGI.OB and a 33 percent gain for CSGJ.OB, both on heavy volume.