[Today's Guide]
○Insurance funds believe a series of policies to stabilize expectation
○Slight improvement in operation environment of China's port enterprises
○Substantial shareholder of Yanjing Huiquan Brewery accelerates to solve horizontal competition
○P/E ratio of several listed companies far lower than industry level
[Institutions' Movement]
Insurance funds believe a series of policies to stabilize expectation
------
According to the latest SSN investigation, the president of the central bank, Zhou Xiaochuan, and the minister of Ministry of Finance (MOF), Lou Jiwei, greatly supported the economy and stock market in the G20 meeting, involving MOF ministers and presidents of central banks. Insurance funds, including PICC Asset Management Company Limited, believed that it is a signal that the government is hedging the unhealthy market expectation through a series of policies. Recently, most of the overseas investors believed that RMB exchange rate will constantly weaken, pressing on China's capital market. However, actually, there are no substantial changes in the overall background of China's economic transformation, structural adjustment and growth stabilization. Along with the gradual stabilization in the market expectation, the A shares will enter a bottom-building stage, and there is no need for the investors to be over panic.
[SSN View]
Economic adjustment to extend for a long run
------
Currently, no one doubts the fact that China's economy is stepping into a periodic 'descending channel', however, there are greatly-different opinions on when it will stabilize and reenter the 'ascending channel'. The writer holds a pessimistic attitude and believes that the economy can reenter a new round growth cycle, only after the economic adjustment of this round generally finishes three tasks of 'productivity deduction', 'inventory deduction' and 'deleveraging'. Presently, the economic adjustment has just started before long, with the most difficult moment waiting in the future. It cannot be excluded that the economic adjustment period may run through the whole '13th 5-year planning'.
Most of China's industries currently have experienced productivity surpluses, especially part of the traditional industries, such as steel, cement, coal and nonferrous metals, even with the absolute surpluses. Due to massive volumes in these industries with leadership rendered ineffectual by recalcitrant subordinates, relatively-advanced productivities are still surplus, even if the lagged productivities have been fully weeded out. Therefore, it is a long-term and difficult procedure to deduct the productivity surpluses.
'Inventory deduction' is mainly to digest the real estate inventory in the whole society, not only the inventory of real estate dealers. In fact, the previous hotspot focusing on the real estate in the whole society, resulting in a high-level inventory of the real estate dealers, but also a house-purchasing upsurge by the residents and enterprises for investment. The official statistics shows that China's per-capita housing GFA surpassed 30 square meters 5 years ago, with current figure closing to that of the developed countries. Related industries, financial system and household consumption will be tremendously hit, once the real estate bubble breaks.
In terms of the 'deleveraging', it is even a tougher task. The surprising data in the 2015 China National Balance Sheet recently issued by the Chinese Academy of Social Sciences shows that the debts scale of China's overall economy, including the financial institutions, reaches 150.03 trillion yuan, with a leverage ratio of 235.7 percent for the whole society. Can such a high leverage level be lowered to the normal level in a short term?
Related research shows that it will take about 7 years for China's periodic economic adjustment. It has been just 7 years since the global financial crisis in 2008. However, in fact, the government took strong intervening measures of '4 trillion yuan investment' after the financial crisis. Therefore, such opportunity was not used to greatly reduce the productivity surplus and deduct the real estate bubble, on the contrary, the surplus productivity increased, with the real estate price pushed high. Meanwhile, the economy-leveraging procedure had been accelerated. As a result, the economic adjustment has actually started since last year, far away from the real end.
[Industry Observation]
Slight improvement in operation environment of China's port enterprises
------
The SSN investigation shows that the global port handling capacity increased 3 percent year on year in the second quarter, with a slight rally on quarter-on-quarter basis, which is a signal of gentle rebound. The operation environment is also slightly improved for China's port enterprises. Due to a great growth in Qingzhou Port of Guangxi Province and strong uptrend of the ports along the Pearl River Delta and China's southeast coastal areas, China Shipping Ports Development Co., Ltd. under China Shipping (Group) Company has experienced a year-on-year growth of 14.8 percent in rights and interests handling capacity in the second quarter. Due to the soaring container handling capacity, the pivotal containers port enterprises, such as Shanghai International Port (Group) Co.,Ltd. (600018.SH), Dalian Port (PDA) Company Limited (02880.HK; 601880.SH) and Zhuhai Port Co.,Ltd. (000507.SZ), obtained the positive growth in the operation revenues. Additionally, the containers' profitability has improved in various degrees. Shanghai International Port and Ningbo Port Company Limited (601018.SH) have year-on-year growth of various degrees in single-container profitability.
[SSN View]
Construction of power distribution network becomes new highlight to boost investment, benefiting equipment companies
------
The National Energy Administration (NEA) and National Development and Reform Commission recently issued documents to promote construction of power distribution network. The NEA proposed that investment in the construction and renovation of power distribution network should not be less than 2 trillion yuan in the next five years and not less than 300 billion yuan in 2015. Power infrastructure becomes a new highlight to boost investment.
Statistics show that China completed 170 billion yuan of investment in power distribution network in 2014. As predicted, the investment amount in 2015 will increase by over 70 percent. Based on the plan for power grid investment launched in early August, the construction of power distribution network for the next half of 2015 has been started. Experts introduced that power distribution equipment accounts for about 40 percent of the total investment in power distribution network. Therefore, companies engaged in equipment are expected to benefit from the construction of power infrastructure.
The products of XJ Electric Co., Ltd. (000400.SZ) cover several links including power generation and power transmission and distribution. The company is a manufacturer of equipment for the first echelon in China. In the centralized bidding of the State Grid Corporation of China, various products of the company rank top by market share. With investment in power distribution network increasing, the company will see rapid development in its intelligent power distribution business.
Beijing Creative Distribution Automation Co., Ltd. (002350.SZ) is a comprehensive enterprise with distribution network automation and maintenance-free power distribution equipment in China and is actively developing in power service market. It took significant market share in the invitation for bids of first two batches of distribution network equipment protocol transformer in 2015.
[Information Radar]
Substantial shareholder of Yanjing Huiquan Brewery accelerates to solve horizontal competition
------
Due to the intensified competition, Fujian Yanjing Huiquan Brewery Co., Ltd. (600573.SH) and its substantial shareholder Beijing Yanjing Brewery Co., Ltd. (000729.SZ) both suffered year-on-year decline in earnings in the first half of 2015. In addition, as the horizontal competition between them has not been resolved, the market predicts that Yanjing Brewery may transfer its shareholding in Yanjing Huiquan Brewery in order to tackle the above problem.
At present, Yanjing Brewery holds 125 million shares in Yanjing Huiquan Brewery, accounting for 50.03 percent of total share capital of the company. Yanjing Brewery signed Commitment Letter of Non-competition on Aug. 11, 2003, promising to make a series of arrange to avoid competition with Yanjing Huiquan Brewery. Although Yanjing Brewery entrusts its subsidiaries Fujian Yanjing Brewery Co., Ltd. and Yanjing Brewery (Ganzhou) Company to Yanjing Huiquan Brewery, investors still doubt the horizontal competition problem between the two companies.
[Data Reference]
P/E ratio of several listed companies far lower than industry level
------
The China Securities Regulatory Commission (CSRC), the Ministry of Finance, the State-owned Assets Supervision and Administration Commission of the State Council and the China Banking Regulatory Commission jointly issued the Notice on Encouraging Listed Companies in Merger and Acquisition, Cash Bonus and Share Repurchase on Aug. 31 evening. The Notice encourages listed companies to actively repurchase their shares when the prices are below the net assets value or the P/E ratio and P/B ratio are below the average level of listed companies in the same industry. According to statistics by SSN, among the listed companies with stock prices dropping below their net assets value, several companies' P/E ratio was far behind the industry level. The P/E ratio of Shandong Nanshan Aluminium Co., Ltd. (600219.SZ), Shandong Chenming Paper Holdings Limited (01812.HK; 000488.SZ), Beijing Urban Construction Investment ＆ Development Co., Ltd. (600266.SH) and China Petroleum ＆ Chemical Corporation (600028.SH) are 57 percent, 48 percent, 33 percent and 32 percent lower than that of industry level.
[Editor's Thought]
Aware of risk of "debubbling"
------
At present, investors including the editor are most confused about why the market is still so sluggish in spite of the strong bailout. The process of "deleverage" is disappointing and the risk of "debubbling" is also worrying.
When the international financial crisis broke out in seven years ago, Chinese government made four trillion yuan of investment to rescue a declining economy, thus avoiding an economic crisis and keeping the economic growth in a rational range. However, the sequelae are obvious including more excess production capacity, more increasing inventory and economic leverage ratio. By now, the developed countries have almost finished deleverage and the U.S. which first adapted to adjustment has began to show economic recovery. However, China may just start the difficult deleverage process.
The current bailout is similar to the four trillion yuan of investment to some extent. Unfortunately, stock market is very sensitive. The strong "deleverage" in early stage resulted in collapsing plummet. It needs time to restore market psychology. It is undeniable that there are more products with investment value. But the investors might have to be guarded against the ongoing "debubbling" process, especially some products with high evaluation.
○Insurance funds believe a series of policies to stabilize expectation
○Slight improvement in operation environment of China's port enterprises
○Substantial shareholder of Yanjing Huiquan Brewery accelerates to solve horizontal competition
○P/E ratio of several listed companies far lower than industry level
[Institutions' Movement]
Insurance funds believe a series of policies to stabilize expectation
------
According to the latest SSN investigation, the president of the central bank, Zhou Xiaochuan, and the minister of Ministry of Finance (MOF), Lou Jiwei, greatly supported the economy and stock market in the G20 meeting, involving MOF ministers and presidents of central banks. Insurance funds, including PICC Asset Management Company Limited, believed that it is a signal that the government is hedging the unhealthy market expectation through a series of policies. Recently, most of the overseas investors believed that RMB exchange rate will constantly weaken, pressing on China's capital market. However, actually, there are no substantial changes in the overall background of China's economic transformation, structural adjustment and growth stabilization. Along with the gradual stabilization in the market expectation, the A shares will enter a bottom-building stage, and there is no need for the investors to be over panic.
[SSN View]
Economic adjustment to extend for a long run
------
Currently, no one doubts the fact that China's economy is stepping into a periodic 'descending channel', however, there are greatly-different opinions on when it will stabilize and reenter the 'ascending channel'. The writer holds a pessimistic attitude and believes that the economy can reenter a new round growth cycle, only after the economic adjustment of this round generally finishes three tasks of 'productivity deduction', 'inventory deduction' and 'deleveraging'. Presently, the economic adjustment has just started before long, with the most difficult moment waiting in the future. It cannot be excluded that the economic adjustment period may run through the whole '13th 5-year planning'.
Most of China's industries currently have experienced productivity surpluses, especially part of the traditional industries, such as steel, cement, coal and nonferrous metals, even with the absolute surpluses. Due to massive volumes in these industries with leadership rendered ineffectual by recalcitrant subordinates, relatively-advanced productivities are still surplus, even if the lagged productivities have been fully weeded out. Therefore, it is a long-term and difficult procedure to deduct the productivity surpluses.
'Inventory deduction' is mainly to digest the real estate inventory in the whole society, not only the inventory of real estate dealers. In fact, the previous hotspot focusing on the real estate in the whole society, resulting in a high-level inventory of the real estate dealers, but also a house-purchasing upsurge by the residents and enterprises for investment. The official statistics shows that China's per-capita housing GFA surpassed 30 square meters 5 years ago, with current figure closing to that of the developed countries. Related industries, financial system and household consumption will be tremendously hit, once the real estate bubble breaks.
In terms of the 'deleveraging', it is even a tougher task. The surprising data in the 2015 China National Balance Sheet recently issued by the Chinese Academy of Social Sciences shows that the debts scale of China's overall economy, including the financial institutions, reaches 150.03 trillion yuan, with a leverage ratio of 235.7 percent for the whole society. Can such a high leverage level be lowered to the normal level in a short term?
Related research shows that it will take about 7 years for China's periodic economic adjustment. It has been just 7 years since the global financial crisis in 2008. However, in fact, the government took strong intervening measures of '4 trillion yuan investment' after the financial crisis. Therefore, such opportunity was not used to greatly reduce the productivity surplus and deduct the real estate bubble, on the contrary, the surplus productivity increased, with the real estate price pushed high. Meanwhile, the economy-leveraging procedure had been accelerated. As a result, the economic adjustment has actually started since last year, far away from the real end.
[Industry Observation]
Slight improvement in operation environment of China's port enterprises
------
The SSN investigation shows that the global port handling capacity increased 3 percent year on year in the second quarter, with a slight rally on quarter-on-quarter basis, which is a signal of gentle rebound. The operation environment is also slightly improved for China's port enterprises. Due to a great growth in Qingzhou Port of Guangxi Province and strong uptrend of the ports along the Pearl River Delta and China's southeast coastal areas, China Shipping Ports Development Co., Ltd. under China Shipping (Group) Company has experienced a year-on-year growth of 14.8 percent in rights and interests handling capacity in the second quarter. Due to the soaring container handling capacity, the pivotal containers port enterprises, such as Shanghai International Port (Group) Co.,Ltd. (600018.SH), Dalian Port (PDA) Company Limited (02880.HK; 601880.SH) and Zhuhai Port Co.,Ltd. (000507.SZ), obtained the positive growth in the operation revenues. Additionally, the containers' profitability has improved in various degrees. Shanghai International Port and Ningbo Port Company Limited (601018.SH) have year-on-year growth of various degrees in single-container profitability.
[SSN View]
Construction of power distribution network becomes new highlight to boost investment, benefiting equipment companies
------
The National Energy Administration (NEA) and National Development and Reform Commission recently issued documents to promote construction of power distribution network. The NEA proposed that investment in the construction and renovation of power distribution network should not be less than 2 trillion yuan in the next five years and not less than 300 billion yuan in 2015. Power infrastructure becomes a new highlight to boost investment.
Statistics show that China completed 170 billion yuan of investment in power distribution network in 2014. As predicted, the investment amount in 2015 will increase by over 70 percent. Based on the plan for power grid investment launched in early August, the construction of power distribution network for the next half of 2015 has been started. Experts introduced that power distribution equipment accounts for about 40 percent of the total investment in power distribution network. Therefore, companies engaged in equipment are expected to benefit from the construction of power infrastructure.
The products of XJ Electric Co., Ltd. (000400.SZ) cover several links including power generation and power transmission and distribution. The company is a manufacturer of equipment for the first echelon in China. In the centralized bidding of the State Grid Corporation of China, various products of the company rank top by market share. With investment in power distribution network increasing, the company will see rapid development in its intelligent power distribution business.
Beijing Creative Distribution Automation Co., Ltd. (002350.SZ) is a comprehensive enterprise with distribution network automation and maintenance-free power distribution equipment in China and is actively developing in power service market. It took significant market share in the invitation for bids of first two batches of distribution network equipment protocol transformer in 2015.
[Information Radar]
Substantial shareholder of Yanjing Huiquan Brewery accelerates to solve horizontal competition
------
Due to the intensified competition, Fujian Yanjing Huiquan Brewery Co., Ltd. (600573.SH) and its substantial shareholder Beijing Yanjing Brewery Co., Ltd. (000729.SZ) both suffered year-on-year decline in earnings in the first half of 2015. In addition, as the horizontal competition between them has not been resolved, the market predicts that Yanjing Brewery may transfer its shareholding in Yanjing Huiquan Brewery in order to tackle the above problem.
At present, Yanjing Brewery holds 125 million shares in Yanjing Huiquan Brewery, accounting for 50.03 percent of total share capital of the company. Yanjing Brewery signed Commitment Letter of Non-competition on Aug. 11, 2003, promising to make a series of arrange to avoid competition with Yanjing Huiquan Brewery. Although Yanjing Brewery entrusts its subsidiaries Fujian Yanjing Brewery Co., Ltd. and Yanjing Brewery (Ganzhou) Company to Yanjing Huiquan Brewery, investors still doubt the horizontal competition problem between the two companies.
[Data Reference]
P/E ratio of several listed companies far lower than industry level
------
The China Securities Regulatory Commission (CSRC), the Ministry of Finance, the State-owned Assets Supervision and Administration Commission of the State Council and the China Banking Regulatory Commission jointly issued the Notice on Encouraging Listed Companies in Merger and Acquisition, Cash Bonus and Share Repurchase on Aug. 31 evening. The Notice encourages listed companies to actively repurchase their shares when the prices are below the net assets value or the P/E ratio and P/B ratio are below the average level of listed companies in the same industry. According to statistics by SSN, among the listed companies with stock prices dropping below their net assets value, several companies' P/E ratio was far behind the industry level. The P/E ratio of Shandong Nanshan Aluminium Co., Ltd. (600219.SZ), Shandong Chenming Paper Holdings Limited (01812.HK; 000488.SZ), Beijing Urban Construction Investment ＆ Development Co., Ltd. (600266.SH) and China Petroleum ＆ Chemical Corporation (600028.SH) are 57 percent, 48 percent, 33 percent and 32 percent lower than that of industry level.
[Editor's Thought]
Aware of risk of "debubbling"
------
At present, investors including the editor are most confused about why the market is still so sluggish in spite of the strong bailout. The process of "deleverage" is disappointing and the risk of "debubbling" is also worrying.
When the international financial crisis broke out in seven years ago, Chinese government made four trillion yuan of investment to rescue a declining economy, thus avoiding an economic crisis and keeping the economic growth in a rational range. However, the sequelae are obvious including more excess production capacity, more increasing inventory and economic leverage ratio. By now, the developed countries have almost finished deleverage and the U.S. which first adapted to adjustment has began to show economic recovery. However, China may just start the difficult deleverage process.
The current bailout is similar to the four trillion yuan of investment to some extent. Unfortunately, stock market is very sensitive. The strong "deleverage" in early stage resulted in collapsing plummet. It needs time to restore market psychology. It is undeniable that there are more products with investment value. But the investors might have to be guarded against the ongoing "debubbling" process, especially some products with high evaluation.
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