Saturday, April 20, 2013

Hong Kong dockworkers go on strike

Hong Kong's dockworkers' strike has ended its 23rd day, attracting growing public support.

On March 28, some 450 stevedores and crane operators stopped work at the city's container terminal, which is the world's third busiest. Since Wednesday, 100 of them have been camping outside the headquarters of its operator - Hong Kong International Terminals - in the city center. 
The strike’s organizers say their wages are lower than 18 years ago, even without taking into account the effects of inflation. Conditions are also a complaint. 

Experts doubt if the strikers will win, in part because fragmented unionization means the port is still operating. Nonetheless, the public has donated more than $720,000 to a strike fund. Fellow dockworkers have traveled from as far away as Australia to show solidarity, along with local lawmakers and students who see the fight as part of a larger struggle against growing inequality. 

Since Hong Kong returned from British to Chinese rule in 1997, the city's economy has grown by over 60 percent. Median incomes, however, have stayed the same because nearly all of the extra wealth has gone to the rich. Numerous studies show Hong Kong now has the largest wealth gap in both Asia and the developed world. 

Hong Kong's economy today is dominated by a handful of tycoons who have profited hugely from a lack of anti-monopoly legislation. Richest of them all is the owner of Hong Kong International Terminals, Li Ka-shing. Hong Kongers increasingly resent him as a symbol of the gap between the rich and the lower middle class. 

While Hong Kong International Terminals says it has offered its contractors a 7 percent raise, the strikers are demanding 23 percent.

Friday, April 19, 2013

Bottom fishing on Commodity-related themes

After the recent days of price volatility, many investment experts and investors have suddenly turned to be very bearish towards commodity markets.  Besides, HK and Chinaequity markets have severely underperformed the US equity markets since early February. Despite the pessimism, we are quite positive towards some commodities and relevant listed companies.  The reason is very straight forward ------ Be greedy when people around you have become too bearish.

Global equity markets in general closed lower as some investors have started to take profit from the US equity markets.  The DJIA lost 0.56% to 14,537.1 while the UK-based FTSE 100 index slightly fell 0.01% to 6,243.7.  German DAX lost 0.39% to 7,473.7.

We prefer Petro China (857) to CNOOC (883)
Relatively speaking, we are more positive towards gold compared to industrial commodities such as crude oil after the recent commodity market crunch.  The reasons are very simple. Global economy may have chance to face slowdown risk in the year of 2013, thus limiting the demand growth for industry commodities.  However, inflation risk caused by excessive money supply (note: QEs in some developed countries and loose monetary policy in Chinahave created the problem of excessive liquidity) should buy gold price from 2-3 year perspective.  Besides, risks such as currency war and geopolitical risk in North Asia (note: caused by the North Korea missile incident) may imply higher demand for safe haven assets such as gold.  Gold price is around US$1,391 per ounce while NY crude oil is about US$87.2 per barrel.

In theory, upstream oil energy stocks such as CNOOC (883; HK$13.4) should benefit from potential oil price technical rebound.  Nevertheless, company risk associated with the Nexen acquisition may negatively affect the profit level in 2013 and 2014.  As such, we prefer PetroChina (857; HK$9.31), another state-owned oil energy company that has balanced exposure to upstream and downstream operations.

At HK$9.31, Petro China trades at FY12 P/E of 11.9x (EPS: HK$0.785), and valuation appears to be affordable after few months of share price correction.  The share price was HK$11.06 on January 31, 2013, and current share price has cumulatively corrected for around 16%.  Petro China may suit prudent investors who pursue less-risky stock choices.

Quality gold mining stocks with good speculative value
The speculation game of gold is very straight forward.  If gold price is not as bad as most people think of (note: many people have suddenly turned to be bearish recently), the safe haven asset is likely to rebound considerably in the coming quarters.

To leverage the potential speculation return, quality gold mining stocks may be sensible pick.  At HK$8.12, Zhaojin Mining trades at FY12 P/E of 9.9x (EPS: HK$0.820) and the stock should be extremely oversold after months of share price weakness.  Of course, such speculation game may not suit everybody and exposure of the share should not exceed 5% of total portfolio size.