China boom 'cushions world slump' by Steve Schifferes
BBC News economics reporter
The World Bank says global economic growth will slow in 2008 as the credit crunch hits the richest nations.
But it says that the "resilience" of developing countries will cushion the slowdown, with China still booming.
Overall, the Bank projects annual world economic growth to slow to 3.3% in 2008, compared with 3.6% in 2007.
Yet it warns that developing country growth, projected at 7.1% this year, could still be derailed by further financial turmoil or over-heating.
Risks remain
The World Bank's Global Economic Prospects is the first economic forecast to look specifically at how the credit crunch has affected developing countries.
It follows other international organisations like the IMF and the OECD in suggesting a relatively benign scenario, with swift action by central banks limiting the damage caused by the credit crunch to the US economy.
It expects US growth to slow sharply to 1% in the first half of 2008, but recover quickly by 2009. Overall, the industrialised countries are expected to grow by 2.2% this year, down around 0.5% compared with the previous year.
In contrast, China is expected to grow by more than 10% over the next two years, with India not far behind.
Overall, the two biggest emerging market countries give a strong boost to total growth in developing nations.
Without their contribution, developing country growth would be a much more modest 5.5%, and substantially less on a per capita basis, Professor Jim Rollo of Sussex University pointed out.
He warned that the World Bank might be too optimistic about the ability of policy markers to respond to the highly uncertain economic situation.
Decoupled economies?
The World says that so far developing countries have been relatively insulated from the turmoil in world financial markets.
The stock markets in many developing countries, after an initial slump in August, have continued their long boom.
And in the bond markets, the interest rates on bonds issued by developing countries have only risen modestly (by less than 1%), compared to a sharp increase in interest rates in corporate bonds in industrial countries.
But it warns that a bigger slowdown in the US, for example a housing market crash that pushed the American economy into outright recession, would have a bigger impact on developing countries.
"A sharper US slowdown is a real risk that could weaken medium-term prospects in developing countries," says the World Bank's Uri Dadush.
The Bank says that middle income countries such as Brazil would be most affected, both by a reduction in their trade and a fall in foreign investment.
However, the Bank points out that less than 20% of China's exports now go to the US, so that even a US slowdown would not substantially slow its rate of growth.
The Bank says there is also a risk on the "upside", with the economic boom leading to accelerating inflation and an over-valued stock market in China and other emerging markets.
Commodity boom
In the past few years, oil prices have risen fourfold, while the price of grains and other internationally traded foodstuffs such as oils has doubled.
The Bank points out that the commodity boom has had both positive and negative consequences for developing countries.
The increased price of commodities like oil and copper has boosted the income of the some of the world's poorest countries in Africa, such as Sudan and Angola.
However, the higher price of foodstuffs such as grains has also had a negative impact on the income of non-oil developing countries, with the urban poor especially hard-hit.
The Bank estimates that this has reduced growth by 0.5% in non-oil developing countries.
Poverty and technology
The report also looks at the long-term prospects of developing countries, and the importance of technology transfer.
It says that over the past 15 years, between 1990 and 2005, developing countries closed some of the technology gap between rich and poor countries.
But middle income countries still only have reached 50% of the technological level of rich countries, it estimates, while low income countries are at only 25%.
The Bank says that further technology transfer should allow developing countries to grow by 3.9% in per capita terms over the next decade, which should reduce poverty substantially.
It estimates that the numbers in global poverty (based on the $1 per day standard) will fall from 1.2 billion people in 1990 to 970 million in 2004 and 624 million in 2015.
However, 30% of people in sub-Saharan Africa will still be below that poverty line, compared with 10% in the developing world as a whole.
And it says that further technology transfer depends on improvements in the domestic conditions in developing countries, such as better education and technical literacy, more support for innovation, and greater efforts to diffuse technology to rural areas.
Foreign investment and transfers of money and skill from migrants who returned home have been the most important means of technology transfer so far, the Bank said.
Two of the key support levels for the STI that are quoted in the market place are the 3300 level and the 3000 level. We had highlighted the 3000 level as the worst case downside support level in our 2008 strategy report, stating that it represented 7 year mean price to book valuations. Yet, the way, we see it, there is very little in charts that suggests that the index could head down to the 3000 level in the near term. The low volatility in banking stocks is one of the reasons why we believe that a near term low is in the making. Additionally, some of the stocks in the sector are trading near previous lows on low volume. The STI has so far corrected marginally below 3300, yet there is no major sign of panic and the index's performance thus far is encouraging. Even, if the index breaks below the 3300 level, we think there will be secondary supports.
Watch out also for a marginal decline in the HSI towards 26600. If HIS registers a marginal decline and rebounds, then the odds are that an important low could have formed for both the STI and the HIS. All said, we still maintain the view, that the present decline is a buying opportunity and we highlight some of the laggard index stocks.
1. Capitaland - Stock at $5.95 is trading at a 1 year low and off by 30% from May 2007 high of $8.50. Support at $5.70-5.80.
2. City Dev - Another laggard. 2007, high was $17.90. At $12.56, stock has declined by 30%. Support at $12.20-12.20.
3. SGX - 2007 high was $17.20. Prior lows in 3Q07 and 4Q07 were in the $12.00-12.10 range. Stock has declined by 29% at present $12.10 level. Support is at current levels. If the $12.00-12.10 range breaks stock could head towards $11.60.
4. SembCorp Marine - Stock had fallen to a low of $3.82 from a high of $5.70. At current level of $4.23, the stock is showing positive relative strength to the STI over a 5 week period. Support level is at $4.14. Resistance is at $4.52
5. DBS - Peak in 2007 was at $25.00. From that level, it had corrected towards $18.70-19.00, 4 times. This represents an important floor. Stock is currently at $20.13. Volatility has been relatively lower as opposed to 3Q07 and 4Q07. Recommend accumulating between $19.60-20.00.
6. CapitaCommTrust - The stock reached a high at $3.32 in 2007 and since then it has corrected to a low of $2.11. Current price stands at $2.14. DPU for FYO8 is projected at $0.097. This provides a yield of 4.5% as at current $2.14. Next support level is stands at $1.95-2.00 range. Our fundamental price target is at $3.04.
7. CapitaMall Trust - Stock had fallen from a high of $4.32 in June 2007 to a low of $2.96 in August. At present the stock stands at $3.18 and is consolidating between $3.10-3.52. At $3.18, the stock offers a yield of 4.5% based on consensus DPU of $0.146.
8. SIA- Stock has fallen from a high of $20.00 to a recent low of $16.30. This represents an 18.5% decline. At present $16.70, the stock is trading at 1.3x historical P/B ratio. Support is at $15.80-16.00.
Asian Stocks Rise Most in Six Weeks; Miners, Drugmakers Climb
By Chen Shiyin and Chua Kong Ho
Jan. 9 (Bloomberg) -- Asian stocks rose the most in six weeks, led by Newcrest Mining Ltd. and Jiangxi Copper Ltd., after gold paced metals prices higher.
Mitsui & Co. and Mitsubishi Corp., Japan's two largest trading companies, advanced as crude oil climbed for a second day. Takeda Pharmaceutical Co. led drugmakers higher as investors sought shares least affected by an economic slowdown, driving a gauge of health-care companies to its biggest gain in four months.
``The boom on commodities has provided investors an excuse for buying into metal shares, which are one of the market favorites now,'' said Lu Yizhen, who helps manage about $640 million at Citic-Prudential Fund Management Co. in Shanghai.
The MSCI Asia Pacific Index climbed 1.3 percent to 155.16 as of 6 p.m. in Tokyo, erasing earlier losses of as much as 0.7 percent. The benchmark was set for its biggest advance since Nov. 29. Japan's Nikkei 225 Stock Average increased 0.5 percent to 14,599.16.
Most Asian stock indexes gained, rebounding from earlier losses, after The Wall Street Journal reported the U.S. is contemplating a $500 tax rebate for all Americans and incentives for companies to invest in machinery.
U.S. stocks retreated yesterday, sending the Standard & Poor's 500 Index to the lowest level since March, after a bigger- than-forecast drop in U.S. home sales added to concern that Asia's largest export market will slip into recession.
Newcrest jumped 6.6 percent to A$39.28, a record. Sumitomo Metal Mining Co., Japan's biggest gold producer, rose 5 percent to 1,907 yen. Zijin Mining Group Co., owner of China's largest gold mine, advanced 2.5 percent to HK$13.10 in Hong Kong.
Gold, Copper
Gold for immediate delivery climbed to a record $882.55 an ounce recently as a weakening dollar sparks demand for alternative assets. Platinum also climbed to a high, and copper gained in Shanghai by the exchange-imposed daily limit. Gold and copper are having their best start to the year since at least 1980, according to analysts including commodity broker Okachi & Co.'s Takaki Shigemoto.
Jiangxi Copper, China's second-largest producer of the metal, advanced 8.9 percent to HK$20.55. Nippon Mining Holdings Inc., which controls Japan's biggest copper smelter, added 3.5 percent to 714 yen.
Takeda, Japan's largest drugmaker, rose 3 percent to 6,480 yen. Astellas Pharma Inc., the nation's second-biggest, added 3.5 percent to 4,690 yen, snapping a four-day, 7.6 percent decline.
The MSCI Asia-Pacific Health Care Index jumped 2.2 percent today, the biggest advance since Sept. 7. Drug stocks led gains in Europe yesterday and were the only one of 10 industry groups to rise in the S&P 500.
Toyama Chemical Co. surged 10 percent to 735 yen, after saying studies of a potential flu drug are progressing. Nichi-iko Pharmaceutical advanced 6.5 percent to 2,625 yen after Goldman, Sachs & Co.'s Kyoko Sato rated the stock ``buy'' in new coverage.
Trading Houses
Mitsui & Co., which derives more than half its profit from commodities dealing, gained 4.9 percent to 2,380 yen, the most since Nov. 30. Mitsubishi, Japan's largest trading house, added 2.7 percent to 3,030 yen, the biggest gain since Dec. 25.
Crude oil for February delivery climbed as much as 0.7 percent to $97 a barrel in electronic trading on the New York Mercantile Exchange, after advancing 1.3 percent yesterday.
Lawson Inc., operator of Japan's second-largest convenience- store chain, jumped 5.9 percent to 3,930 yen, its first advance since Dec. 20, and FamilyMart Co., the No. 3, rose 5.2 percent to 3,460 yen. Both companies, which are gaining market share from supermarkets, reported a 6.9 percent increase in nine-month revenue. Total sales at Japan's convenience stores have risen for the past five months as operators open new outlets and increase commissions from automatic-teller machines.
Lenovo Slumps
Lenovo Group Ltd., the world's No. 3 maker of personal computers, slumped 10 percent to HK$5.88, the most in 14 months and the biggest percentage decline on the MSCI Asia Pacific benchmark. The company's profit for the year ending March 2009 may be 31 percent less than previously estimated on lower sales and rising costs, CLSA Ltd. analyst Jenny Lai said. She cut her rating on the stock to ``sell.''
In Singapore, Wilmar International Ltd., which processes a quarter of the world's palm oil, surged 9.4 percent to S$5.69, the most since it sold shares to the public in July 2000. Prices of palm oil, used as cooking fuel, rose as much as 1.4 percent to a record 3,024 ringgit ($981) a metric on the Malaysia Derivatives Exchange today.
China aims to help its smaller companies break into Africa
By Lucy Hornby
January 8, 2008
BEIJING: Xing Houyuan's advice to investors who seek her out is patient and practical: perform due diligence on any potential partner, clarify its ties to the government, and make sure you control any joint venture.
Her words would have sounded familiar to any company trying to enter China in the 1980s and 1990s. But the nervous-looking man who had just shown Xing his proposal was Chinese, and he was looking to do business in Africa.
While Beijing has pushed aggressively to win major mining, oil and hydroelectric projects around the world, it is only now starting to pay attention to the smaller companies that supply everything from cement to explosives for these large projects.
Xing is director of multinational business at the Chinese Academy of International Trade and Economic Cooperation, which is affiliated with the Chinese Ministry of Commerce. The academy offers policy analysis, market information, due diligence reports and advice, originally for foreigners seeking to invest in China and now also for Chinese companies seeking to do business abroad.
Even though investment by small and midsize companies in Africa has taken off in the last six or seven years, the Chinese government only started to take notice in 2006, when it played host a gathering of African leaders in Beijing, Xing said.
While deals by big state companies get the most attention, smaller, private companies have been quicker to spot opportunities abroad, just as they have done inside China in the last decade. Oil, metal and telecommunication are the most promising sectors in Africa, according to the Chinese Academy of Social Sciences, another government-backed research institute.
"Private companies are the most proactive in our own economy, and in many ways, the African market is suited to smaller players," Xing said. "Small and private companies are more likely to find projects and partners that fit their capability."
Last year, for the first time, Africa accounted for the greatest number of Chinese deals signed overseas. But the continent's share of Chinese foreign investment actually shrank, to 3 percent in 2006 from 7 percent in 2005, indicating a shift toward smaller deals.
To help these smaller businesses, the government organized a Chinese-African investment conference in Beijing in December, where Xing gave advice to people like the executive from a small steel company in Tangshan, east of Beijing, who was looking into investing in an iron ore mine in Libya.
Beware of partners who cannot deliver what they promise, Xing told the steel executive.
Other attendees ranged from the expected, like bankers hoping to lend to successful projects, to the surprising. A representative from Hodo Group, a textile company, wanted information on mining projects in Madagascar.
China is also focusing on what it calls "development zones" for Chinese companies in Africa, aimed at helping small and medium companies get access to credit and government channels.
"We are setting up the zones to help them access resources, and find and get access to local governments, partners and projects that are suitable to their size," Xing said. "The governments there like it because they have an intermediary bigger than just that one company and we like it because we can keep track of our companies, especially if there is a problem."
Keeping track of these smaller players, which are becoming the face of China in Africa, is increasingly important to maintaining Beijing's effort to secure resources in Africa without exploiting its people.
At the Chambishi copper mine in Zambia, for example, which is operated by China Nonferrous Metal Mining Group, there have been disputes over wages and safety. But one of the worst accidents was not in the mine itself but at an explosives supplier, Beijing General Research Institute of Mining and Metallurgy, when an explosion killed 46 workers in 2005.
And some Chinese contractors who have won infrastructure deals with the lowest bids have finished their projects late and well over budget because they failed to anticipate safety and labor regulations.
"In a broad sense, as Chinese companies flood into Africa, there is a big risk of disorderliness. There's a big risk that unfavorable incidents could turn hearts and minds against China," Xing said.
Beijing has designated the copper belt of Zambia, where the Chambishi mine has attracted a cluster of companies in service and secondary industries, as its first development zone in Africa. Chinese companies have signed deals to invest a total of $900 million in the region, according to the Zambian government.
"It's a huge and complex project and it has the potential to be disorderly. Instead we decided to make it a model for how Chinese can participate in the industrialization of Africa," Xing said.
A second zone would be in Nigeria, where the Chinese oil company CNOOC last year purchased a $2.7 billion stake in the Akpo field, Xing said. The country, one of the major African oil producers, is a magnet for Chinese traders selling clothing, shoes and electronics.
Chinese investment in Africa hit $6.4 billion at the end of last year as companies ranging from Huawei Technologies, the giant telecommunications equipment maker, to small players like Zhejiang Huayou Cobalt Nickel Materials, made inroads around the continent.
African economies are expected to grow faster in the first quarter of this century than they did in the past 25 years, creating opportunities for Chinese companies, said Yao Guimei, an Africa researcher at the Chinese Academy of Social Sciences.
Big Chinese-African deals have diversified away from infrastructure. This year, Industrial and Commercial Bank of China agreed to pay $5.6 billion for a 20 percent stake in Standard Bank, which is based in South Africa, in a move that should fuel Chinese investment in the rest of the continent.
The Chinese-African investment conference in Beijing in December coincided - perhaps not coincidentally - with a meeting of European and African leaders in Lisbon, where Senegal's president, Abdoulaye Wade, warned a "slow, bureaucratic" Europe that it risked being outpaced by China and India in the race to invest in Africa.
Despite hand-wringing in some European capitals over the Chinese expansion in Africa, Joshua Eisenman, a fellow at the American Foreign Policy Council, said there was probably more complementarity than competition.
"I don't think that China's efforts in Africa necessarily run contrary to those of the United States and Europe because, let's face it, when was the last time the United States or Europe built infrastructure in Africa?" he said. "I don't see it as a zero sum game. They are involved in different things."
China's first jumbo aircraft company gets March deadline for take-off
January 07, 2008
China has set a March deadline to establish its first jumbo passenger aircraft company, as it moves to positions itself among countries technically capable of manufacturing large jets.
Huang Qiang, secretary general of the Commission of Science Technology and Industry for National Defense (CSTIND), told Xinhua on Monday a director and a chief engineer of research would be appointed by then to make sure "the work goes as planned".
Previously, Shanghai Securities News reported the start-up would only be responsible for the design and assembly of jumbo aircraft, while the production of components and parts would be left to other aviation enterprises.
It was the latest development of the research project approved in principle by China's Cabinet, the State Council, last February.This was to make the country capable of building aircraft with a take-off weight of more than 100 tons, or planes with more than 150 seats.
Currently, only the United States, Russia, France, Germany, Britain and Spain have the capability to build jumbo aircraft, with Boeing and Airbus taking a lion's share of sales in the international market.
Just before the New Year holiday, Chinese Premier Wen Jiabao visited the Avic I Xi'an Aircraft Industry (Group) Company to give a pep talk on the manufacturing of jumbo jets. Last year, the company made China the fourth country to develop its own advanced fighter aircraft -- the "Jian 10".
During his talks with technicians, Wen emphasized a China-made jumbo aircraft as a "significant strategy" of the country. This would lift the country's competence in the global market as a slew of technical breakthroughs, especially in engine, materials and electronic equipment, were to be made.
The maiden flight of the ARJII1, China's first 90-seat regional jet, widely viewed as a step closer to jumbo jets, was scheduled for this year.
Two of the key support levels for the STI that are quoted in the market place are the 3300 level and the 3000 level. We had highlighted the 3000 level as the worst case downside support level in our 2008 strategy report, stating that it represented 7 year mean price to book valuations. Yet, the way, we see it, there is very little in charts that suggests that the index could head down to the 3000 level in the near term. The low volatility in banking stocks is one of the reasons why we believe that a near term low is in the making. Additionally, some of the stocks in the sector are trading near previous lows on low volume. The STI has so far corrected marginally below 3300, yet there is no major sign of panic and the index's performance thus far is encouraging. Even, if the index breaks below the 3300 level, we think there will be secondary supports.
Watch out also for a marginal decline in the HSI towards 26600. If HIS registers a marginal decline and rebounds, then the odds are that an important low could have formed for both the STI and the HIS. All said, we still maintain the view, that the present decline is a buying opportunity and we highlight some of the laggard index stocks.
1. Capitaland - Stock at $5.95 is trading at a 1 year low and off by 30% from May 2007 high of $8.50. Support at $5.70-5.80.
2. City Dev - Another laggard. 2007, high was $17.90. At $12.56, stock has declined by 30%. Support at $12.20-12.20.
3. SGX - 2007 high was $17.20. Prior lows in 3Q07 and 4Q07 were in the $12.00-12.10 range. Stock has declined by 29% at present $12.10 level. Support is at current levels. If the $12.00-12.10 range breaks stock could head towards $11.60.
4. SembCorp Marine - Stock had fallen to a low of $3.82 from a high of $5.70. At current level of $4.23, the stock is showing positive relative strength to the STI over a 5 week period. Support level is at $4.14. Resistance is at $4.52
5. DBS - Peak in 2007 was at $25.00. From that level, it had corrected towards $18.70-19.00, 4 times. This represents an important floor. Stock is currently at $20.13. Volatility has been relatively lower as opposed to 3Q07 and 4Q07. Recommend accumulating between $19.60-20.00.
6. CapitaCommTrust - The stock reached a high at $3.32 in 2007 and since then it has corrected to a low of $2.11. Current price stands at $2.14. DPU for FYO8 is projected at $0.097. This provides a yield of 4.5% as at current $2.14. Next support level is stands at $1.95-2.00 range. Our fundamental price target is at $3.04.
7. CapitaMall Trust - Stock had fallen from a high of $4.32 in June 2007 to a low of $2.96 in August. At present the stock stands at $3.18 and is consolidating between $3.10-3.52. At $3.18, the stock offers a yield of 4.5% based on consensus DPU of $0.146.
8. SIA- Stock has fallen from a high of $20.00 to a recent low of $16.30. This represents an 18.5% decline. At present $16.70, the stock is trading at 1.3x historical P/B ratio. Support is at $15.80-16.00.
China Eastern Airlines Institutional Holders Wary Of Planned Air China Offer
HONG KONG (Dow Jones)--China Eastern Airlines Corp. (CEA) shareholders may have rejected Singapore Airlines Ltd.’s HK$3.80 a share bid for a stake in the carrier, but that doesn’t mean they’re convinced the parent of rival Air China Ltd. offers better prospects for the airline’s future.
The widely expected rejection Tuesday cleared the way for Air China’s parent, China National Aviation Holding Co., or CNAHC, to make a HK$5.00-plus counterbid for China Eastern that may also involve Hong Kong’s Cathay Pacific Airways Ltd.
CNAHC is promising to plow ahead even though the Shanghai airline insisted Singapore’s flag carrier is still its partner of choice and it won’t accept a strategic tie-up with its rival.
Some institutional investors are now eyeing the Chinese airline’s competitive bid warily, questioning whether or not the rival carrier can or even wants to turn around struggling China Eastern.
Despite rejecting Singapore Airlines’ bid, shareholders approved a separate resolution appointing Singapore Airlines’ chairman, Stephen Lee, and its chief executive officer, Chew Choon Seng, to China Eastern’s board. Although the two will not take up their seats because the bid was defeated, the fact that shareholders backed the two executives shows they believe the Singapore carrier’s management can benefit China Eastern.
CNAHC “hasn’t made a good case for why they should own China Eastern,” said one institutional shareholder, who declined to be identified.
The shareholder, who had been approached by CNAHC when it was still considering a competing bid, said the airline’s presentation focused too much on why China would suffer from China Eastern joining up with Singapore Airlines.
In contrast, “Singapore Airlines came with a clear-cut case, but pity for them... were not able to strike a deal in a timely fashion.”
CNAHC will make a formal offer for a stake of up to 30% in the Shanghai carrier within the next two weeks.
CNAHC has said Singapore Airlines’ proposal was inferior because it didn’t offer the synergies that can be created by the cooperation of two major China-based airlines.
Singapore Airlines and its parent, Temasek Holdings Pte., have thus far resisted raising their HK$7.2 billion offer for a combined 24% stake, but indicated they haven’t given up on the deal just yet.
SIA spokesman Stephen Forshaw said Wednesday: “We remain committed to exploring the partnership with China Eastern. Singapore Airlines is not walking away from this deal.”
“China Eastern remains keen to explore the partnership with us. They see us as a good fit for their business. And we see China Eastern providing the right platform for our interest in China,” he added.
Some institutional shareholders would like to see the two return with a new deal.
Raymond Heche of Willferfunds Management Co. S.A. in Luxembourg, which according to Thomson Financial has about 2 million H shares, said he preferred a tie-up between China Eastern and Singapore Airlines over Air China, but deemed the offer HK$3.80 a share too low. “The market wants a price close to what it’s been valuing (China Eastern) at for six months now and that’s between HK$6 and HK$8 a share, not HK$3.80.”
China Eastern’s shares in Hong Kong have changed hands sharply above the HK$3.80 offer since it resumed trading on Sep. 3, a day after the Singapore Airlines tie-up was officially announced. It is currently trading at a near 80% premium over the original sale price.
Even if CNAHC does put forth a richer offer, which must still be approved by the Chinese government and regulators, Heche said he doesn’t think acceptance would be positive in the long run for CEA.
“I wouldn’t like to see consolidation in China... China is a big country and having only a single dominant carrier for the whole country isn’t a good idea,” he said.
Some institutional shareholders also questioned the potential synergies between China Eastern and Air China.
Even if Air China succeeds in a bid “I’m not sure it means dominance for Air China. It depends on how the routes play out,” said a shareholder at a fund management firm, who did not want to be identified.
In a report on China Eastern Wednesday, Fitch Ratings said it believed it was important for Chinese airlines to partner with international carriers given the need to boost their competitiveness amid ongoing industry deregulation.
The ratings agency said it “considers strategic partnerships with strong international players as an important step for Chinese airlines to improve their management expertise, in terms of operational efficiency, route allocation and yield management.”
In addition to management expertise, a China Eastern tie-up with a foreign investor instead of CNAHC would boost the Shanghai carrier’s long-term value, analysts said.
Stalemate Likely As CEA Unwilling To Accept CNAHC Offer
Institutional investor sentiment aside, it’ll be an uphill battle for Air China to get in with China Eastern. Li Fenghua, chairman of China Eastern Airlines and president of its parent, state-owned China Eastern Air Holding Co., reiterated Tuesday that Singapore Airlines is the best potential investor for the carrier.
“China Eastern Airlines won’t introduce Air China as a strategic investor because acquisition among the three largest airliners will hurt China’s aviation industry,” Li said.
That stance is a considerable obstacle to Air China’s ambitions. China Eastern’s parent, which owns a near-60% controlling stake in the Shanghai airline, can veto any proposal by CNAHC.
But that doesn’t spell success for Singapore Airlines either. Without a higher offer price to woo China Eastern’s Shanghai and Hong Kong-listed shareholders, the airline’s tie-up with the Singaporeans will be nearly impossible to drive through.
The other wildcard is the Chinese government, whose stance on the situation is unclear. The state-owned Assets Supervision and Administration Commission of the State Council, or SASAC, which overseas non-financial state companies and regulates M&A activity, has said little on the matter other than it supports foreign investors but that shareholder decisions should be made on market principles.
However, some analysts viewed the sudden recent appointment of the chief of CNAHC to head the country’s civil aviation regulator as a signal of tacit approval of his vision of Air China as a single dominant Chinese carrier.
Analysts said support for consolidation among China’s state carriers may be increasing, particularly as domestic competition has intensified in recent years.
Despite having a busy Shanghai hub, China Eastern has been losing money. An institutional shareholder sees China Eastern as “a good asset” but one that needs a partner “to take care of the financials.”
The Centre for Asia Pacific Aviation said Wednesday China’s former policy of keeping three main state carriers has become irrelevant as those airlines have established sizable operations at each others’ hubs in Beijing, Shanghai and Guangzhou.
“A rationalization of mainland (China) capacity could be crucial in 2008 to help bolster airline profitability in the face of higher fuel prices and a potential slowdown in international markets, as well as ease congestion at China’s main hubs, including Shanghai,” the think-tank said.
It said an Air China takeover of China Eastern would reduce domestic competition and help carriers raise fares, including the lucrative Shanghai-Hong Kong route.
A potential merger between Air China and China Eastern would create a super carrier commanding over 50% of the nation’s aviation market, according to analyst forecasts.
Morgan Stanley said in a note Wednesday it believes China Eastern’s resistance to CNAHC’s potential bid will ultimately be resolved “through more communication and possibly government intervention.”
Whatever happens, with Singapore Airline’s initial bid scuttled, and its reiteration Wednesday that it will not hike its offer, shareholders are in for a long fight.
“It’s a mud fight,” said one institutional shareholder. “The timing of the SIA deal was way too long... and on the other hand, the move from Air China was completely muddy.”
But time is of the essence for China Eastern, analysts say, given its dire financial position amid continued losses and piling debts. China Eastern’s chairman Li has said the airline won’t survive on its own without a much needed cash injection and management overhaul.
9 comments:
China boom 'cushions world slump'
by Steve Schifferes
BBC News economics reporter
The World Bank says global economic growth will slow in 2008 as the credit crunch hits the richest nations.
But it says that the "resilience" of developing countries will cushion the slowdown, with China still booming.
Overall, the Bank projects annual world economic growth to slow to 3.3% in 2008, compared with 3.6% in 2007.
Yet it warns that developing country growth, projected at 7.1% this year, could still be derailed by further financial turmoil or over-heating.
Risks remain
The World Bank's Global Economic Prospects is the first economic forecast to look specifically at how the credit crunch has affected developing countries.
It follows other international organisations like the IMF and the OECD in suggesting a relatively benign scenario, with swift action by central banks limiting the damage caused by the credit crunch to the US economy.
It expects US growth to slow sharply to 1% in the first half of 2008, but recover quickly by 2009. Overall, the industrialised countries are expected to grow by 2.2% this year, down around 0.5% compared with the previous year.
In contrast, China is expected to grow by more than 10% over the next two years, with India not far behind.
Overall, the two biggest emerging market countries give a strong boost to total growth in developing nations.
Without their contribution, developing country growth would be a much more modest 5.5%, and substantially less on a per capita basis, Professor Jim Rollo of Sussex University pointed out.
He warned that the World Bank might be too optimistic about the ability of policy markers to respond to the highly uncertain economic situation.
Decoupled economies?
The World says that so far developing countries have been relatively insulated from the turmoil in world financial markets.
The stock markets in many developing countries, after an initial slump in August, have continued their long boom.
And in the bond markets, the interest rates on bonds issued by developing countries have only risen modestly (by less than 1%), compared to a sharp increase in interest rates in corporate bonds in industrial countries.
But it warns that a bigger slowdown in the US, for example a housing market crash that pushed the American economy into outright recession, would have a bigger impact on developing countries.
"A sharper US slowdown is a real risk that could weaken medium-term prospects in developing countries," says the World Bank's Uri Dadush.
The Bank says that middle income countries such as Brazil would be most affected, both by a reduction in their trade and a fall in foreign investment.
However, the Bank points out that less than 20% of China's exports now go to the US, so that even a US slowdown would not substantially slow its rate of growth.
The Bank says there is also a risk on the "upside", with the economic boom leading to accelerating inflation and an over-valued stock market in China and other emerging markets.
Commodity boom
In the past few years, oil prices have risen fourfold, while the price of grains and other internationally traded foodstuffs such as oils has doubled.
The Bank points out that the commodity boom has had both positive and negative consequences for developing countries.
The increased price of commodities like oil and copper has boosted the income of the some of the world's poorest countries in Africa, such as Sudan and Angola.
However, the higher price of foodstuffs such as grains has also had a negative impact on the income of non-oil developing countries, with the urban poor especially hard-hit.
The Bank estimates that this has reduced growth by 0.5% in non-oil developing countries.
Poverty and technology
The report also looks at the long-term prospects of developing countries, and the importance of technology transfer.
It says that over the past 15 years, between 1990 and 2005, developing countries closed some of the technology gap between rich and poor countries.
But middle income countries still only have reached 50% of the technological level of rich countries, it estimates, while low income countries are at only 25%.
The Bank says that further technology transfer should allow developing countries to grow by 3.9% in per capita terms over the next decade, which should reduce poverty substantially.
It estimates that the numbers in global poverty (based on the $1 per day standard) will fall from 1.2 billion people in 1990 to 970 million in 2004 and 624 million in 2015.
However, 30% of people in sub-Saharan Africa will still be below that poverty line, compared with 10% in the developing world as a whole.
And it says that further technology transfer depends on improvements in the domestic conditions in developing countries, such as better education and technical literacy, more support for innovation, and greater efforts to diffuse technology to rural areas.
Foreign investment and transfers of money and skill from migrants who returned home have been the most important means of technology transfer so far, the Bank said.
Two of the key support levels for the STI that are quoted in the market place are the 3300 level and the 3000 level. We had highlighted the 3000 level as the worst case downside support level in our 2008 strategy report, stating that it represented 7 year mean price to book valuations. Yet, the way, we see it, there is very little in charts that suggests that the index could head down to the 3000 level in the near term. The low volatility in banking stocks is one of the reasons why we believe that a near term low is in the making. Additionally, some of the stocks in the sector are trading near previous lows on low volume. The STI has so far corrected marginally below 3300, yet there is no major sign of panic and the index's performance thus far is encouraging. Even, if the index breaks below the 3300 level, we think there will be secondary supports.
Watch out also for a marginal decline in the HSI towards 26600. If HIS registers a marginal decline and rebounds, then the odds are that an important low could have formed for both the STI and the HIS. All said, we still maintain the view, that the present decline is a buying opportunity and we highlight some of the laggard index stocks.
1. Capitaland - Stock at $5.95 is trading at a 1 year low and off by 30% from May 2007 high of $8.50. Support at $5.70-5.80.
2. City Dev - Another laggard. 2007, high was $17.90. At $12.56, stock has declined by 30%. Support at $12.20-12.20.
3. SGX - 2007 high was $17.20. Prior lows in 3Q07 and 4Q07 were in the $12.00-12.10 range. Stock has declined by 29% at present $12.10 level. Support is at current levels. If the $12.00-12.10 range breaks stock could head towards $11.60.
4. SembCorp Marine - Stock had fallen to a low of $3.82 from a high of $5.70. At current level of $4.23, the stock is showing positive relative strength to the STI over a 5 week period. Support level is at $4.14. Resistance is at $4.52
5. DBS - Peak in 2007 was at $25.00. From that level, it had corrected towards $18.70-19.00, 4 times. This represents an important floor. Stock is currently at $20.13. Volatility has been relatively lower as opposed to 3Q07 and 4Q07. Recommend accumulating between $19.60-20.00.
6. CapitaCommTrust - The stock reached a high at $3.32 in 2007 and since then it has corrected to a low of $2.11. Current price stands at $2.14. DPU for FYO8 is projected at $0.097. This provides a yield of 4.5% as at current $2.14. Next support level is stands at $1.95-2.00 range. Our fundamental price target is at $3.04.
7. CapitaMall Trust - Stock had fallen from a high of $4.32 in June 2007 to a low of $2.96 in August. At present the stock stands at $3.18 and is consolidating between $3.10-3.52. At $3.18, the stock offers a yield of 4.5% based on consensus DPU of $0.146.
8. SIA- Stock has fallen from a high of $20.00 to a recent low of $16.30. This represents an 18.5% decline. At present $16.70, the stock is trading at 1.3x historical P/B ratio. Support is at $15.80-16.00.
Best Regards
K Ajith
Asian Stocks Rise Most in Six Weeks; Miners, Drugmakers Climb
By Chen Shiyin and Chua Kong Ho
Jan. 9 (Bloomberg) -- Asian stocks rose the most in six weeks, led by Newcrest Mining Ltd. and Jiangxi Copper Ltd., after gold paced metals prices higher.
Mitsui & Co. and Mitsubishi Corp., Japan's two largest trading companies, advanced as crude oil climbed for a second day. Takeda Pharmaceutical Co. led drugmakers higher as investors sought shares least affected by an economic slowdown, driving a gauge of health-care companies to its biggest gain in four months.
``The boom on commodities has provided investors an excuse for buying into metal shares, which are one of the market favorites now,'' said Lu Yizhen, who helps manage about $640 million at Citic-Prudential Fund Management Co. in Shanghai.
The MSCI Asia Pacific Index climbed 1.3 percent to 155.16 as of 6 p.m. in Tokyo, erasing earlier losses of as much as 0.7 percent. The benchmark was set for its biggest advance since Nov. 29. Japan's Nikkei 225 Stock Average increased 0.5 percent to 14,599.16.
Most Asian stock indexes gained, rebounding from earlier losses, after The Wall Street Journal reported the U.S. is contemplating a $500 tax rebate for all Americans and incentives for companies to invest in machinery.
U.S. stocks retreated yesterday, sending the Standard & Poor's 500 Index to the lowest level since March, after a bigger- than-forecast drop in U.S. home sales added to concern that Asia's largest export market will slip into recession.
Newcrest jumped 6.6 percent to A$39.28, a record. Sumitomo Metal Mining Co., Japan's biggest gold producer, rose 5 percent to 1,907 yen. Zijin Mining Group Co., owner of China's largest gold mine, advanced 2.5 percent to HK$13.10 in Hong Kong.
Gold, Copper
Gold for immediate delivery climbed to a record $882.55 an ounce recently as a weakening dollar sparks demand for alternative assets. Platinum also climbed to a high, and copper gained in Shanghai by the exchange-imposed daily limit. Gold and copper are having their best start to the year since at least 1980, according to analysts including commodity broker Okachi & Co.'s Takaki Shigemoto.
Jiangxi Copper, China's second-largest producer of the metal, advanced 8.9 percent to HK$20.55. Nippon Mining Holdings Inc., which controls Japan's biggest copper smelter, added 3.5 percent to 714 yen.
Takeda, Japan's largest drugmaker, rose 3 percent to 6,480 yen. Astellas Pharma Inc., the nation's second-biggest, added 3.5 percent to 4,690 yen, snapping a four-day, 7.6 percent decline.
The MSCI Asia-Pacific Health Care Index jumped 2.2 percent today, the biggest advance since Sept. 7. Drug stocks led gains in Europe yesterday and were the only one of 10 industry groups to rise in the S&P 500.
Toyama Chemical Co. surged 10 percent to 735 yen, after saying studies of a potential flu drug are progressing. Nichi-iko Pharmaceutical advanced 6.5 percent to 2,625 yen after Goldman, Sachs & Co.'s Kyoko Sato rated the stock ``buy'' in new coverage.
Trading Houses
Mitsui & Co., which derives more than half its profit from commodities dealing, gained 4.9 percent to 2,380 yen, the most since Nov. 30. Mitsubishi, Japan's largest trading house, added 2.7 percent to 3,030 yen, the biggest gain since Dec. 25.
Crude oil for February delivery climbed as much as 0.7 percent to $97 a barrel in electronic trading on the New York Mercantile Exchange, after advancing 1.3 percent yesterday.
Lawson Inc., operator of Japan's second-largest convenience- store chain, jumped 5.9 percent to 3,930 yen, its first advance since Dec. 20, and FamilyMart Co., the No. 3, rose 5.2 percent to 3,460 yen. Both companies, which are gaining market share from supermarkets, reported a 6.9 percent increase in nine-month revenue. Total sales at Japan's convenience stores have risen for the past five months as operators open new outlets and increase commissions from automatic-teller machines.
Lenovo Slumps
Lenovo Group Ltd., the world's No. 3 maker of personal computers, slumped 10 percent to HK$5.88, the most in 14 months and the biggest percentage decline on the MSCI Asia Pacific benchmark. The company's profit for the year ending March 2009 may be 31 percent less than previously estimated on lower sales and rising costs, CLSA Ltd. analyst Jenny Lai said. She cut her rating on the stock to ``sell.''
In Singapore, Wilmar International Ltd., which processes a quarter of the world's palm oil, surged 9.4 percent to S$5.69, the most since it sold shares to the public in July 2000. Prices of palm oil, used as cooking fuel, rose as much as 1.4 percent to a record 3,024 ringgit ($981) a metric on the Malaysia Derivatives Exchange today.
曾渊沧：我依然看好香港地产股
2008年01月09日
中原城市指数显示，2007年香港二手房市场买卖的价格上升了二成。2007年12月30日的中原城市指数已经回升至66.98点。不过这二成的升幅主要是在去年美联储开始减息后积累的。过去三个月，尽管股市不怎么好，美国房地产价格下跌，香港楼市却一枝独秀，连连上升。
港元与美元挂钩，港元利率也追随美元利率。为什么香港房地产走势与美国不一样呢？现在，美国房地产市场正处于水深火热中，房价不断下跌，香港不但不受影响，反而上涨呢？
主要原因是香港楼价的高潮是在1997年出现的。中原城市指数以1997年7月10日为基点，即100点。目前的点位相比当年下跌了三分之一。
因为有1997年的教训，香港楼市从2003年至今仍属于稳定健康地回升。但是从2003年至今，美国房地产市场经过了一场疯狂炒卖，出现了巨大的泡沫。房价脱离了购买力，如今泡沫破灭了。
香港的楼市泡沫早在1997年就破灭了。现在是复苏阶段，离全面复苏还有一段距离。楼价下跌的10年半里，很多人都不敢买楼。于是，买楼的欲望被压抑了10年后，好不容易等到减息，购买欲望一下子就爆发了。可是与此同时，香港新房屋的供应却大幅度减少。房地产开发商在三五年前还看不透香港楼市的前景，不敢出手买地建楼。因此，如今提供给市场的供应量自然不足。
减息、购房意愿压抑太久以及供应不足这三大因素直接推动了香港楼价。
展望今年，香港楼价还会上升。不过最近有知名的分析师说，去年香港本地地产股的股价上升幅度已经超过了楼价的上升幅度，说明地产股的价格已经反映了楼价继续上升的因素。因此，他建议只应该买楼，而不买地产股。我鼓励买楼，同时也鼓励买地产股。今年只要楼价再升，地产股的股价依然还会再升。
今年，最丰收的地产股应该是新世界(600628行情,股吧)发展。谈地产股，当然要说一下长实、新地和恒基地产，这是香港最大的三家地产商。这三家公司的大股东，李嘉诚、郭氏兄弟和李兆基也是香港最有钱的富豪。这说明，这么多年来，香港还是搞房地产最赚钱。
不过，郭氏兄弟目前仍然以房地产为主业。李嘉诚旗下的和黄已经成为一家业务范围极广的综合性公司。李兆基则摇身一变，投入股市，成为香港最厉害的“股神”。
再战明天：今晚及明天需关注重要信息
2008年01月09日 16:44
中金在线/港股编辑部
大市今天(９日)先跌后回升。受美股昨天(８日)急跌拖累下，恒指低开逾２００点后持续下滑，最低曾跌至２６７００点水平，惟其后市传美国政府或以减税刺激当地的经济，以及日股收市倒升，刺激恒指转跌为升，并以接近全日最高位收市，收市报２７６１５，涨５０２点或１．９％，主板成交逾１２００亿元。国指重上１６０００点水平，收报１６１３９点或３％。
明天(１０日)成弗悸恁]０２８８)公布中期业绩，耀科国际(０１４３)则公布末期业绩。
美国今晚公布上周抵押市场指数。另外，加拿大今晚公布１２月新屋动工数据，市场预期为２２．１万间。
美股方面，今晚将有多间企业公布季度业绩，其中包括美国铝业，市场预期每股盈利为０．３４美元。
欧洲方面，欧元区今天傍晚公布第三季ＧＤＰ季率及年率修正值，市场预期分别为０．７％及２．７％。
英国央行货币政策委员会(ＭＰＣ)今晚起一连两天举行议息会议，市场预期将会维持利率于５．５％不变。
澳洲明早将公布１１月贸易收支差额数据，市场预期逆差２５亿澳元。
日本明早公布１２月外汇储备数据。另外，日本１１月领先指标及同时指标亦于明天发布。
China aims to help its smaller companies break into Africa
By Lucy Hornby
January 8, 2008
BEIJING: Xing Houyuan's advice to investors who seek her out is patient and practical: perform due diligence on any potential partner, clarify its ties to the government, and make sure you control any joint venture.
Her words would have sounded familiar to any company trying to enter China in the 1980s and 1990s. But the nervous-looking man who had just shown Xing his proposal was Chinese, and he was looking to do business in Africa.
While Beijing has pushed aggressively to win major mining, oil and hydroelectric projects around the world, it is only now starting to pay attention to the smaller companies that supply everything from cement to explosives for these large projects.
Xing is director of multinational business at the Chinese Academy of International Trade and Economic Cooperation, which is affiliated with the Chinese Ministry of Commerce. The academy offers policy analysis, market information, due diligence reports and advice, originally for foreigners seeking to invest in China and now also for Chinese companies seeking to do business abroad.
Even though investment by small and midsize companies in Africa has taken off in the last six or seven years, the Chinese government only started to take notice in 2006, when it played host a gathering of African leaders in Beijing, Xing said.
While deals by big state companies get the most attention, smaller, private companies have been quicker to spot opportunities abroad, just as they have done inside China in the last decade. Oil, metal and telecommunication are the most promising sectors in Africa, according to the Chinese Academy of Social Sciences, another government-backed research institute.
"Private companies are the most proactive in our own economy, and in many ways, the African market is suited to smaller players," Xing said. "Small and private companies are more likely to find projects and partners that fit their capability."
Last year, for the first time, Africa accounted for the greatest number of Chinese deals signed overseas. But the continent's share of Chinese foreign investment actually shrank, to 3 percent in 2006 from 7 percent in 2005, indicating a shift toward smaller deals.
To help these smaller businesses, the government organized a Chinese-African investment conference in Beijing in December, where Xing gave advice to people like the executive from a small steel company in Tangshan, east of Beijing, who was looking into investing in an iron ore mine in Libya.
Beware of partners who cannot deliver what they promise, Xing told the steel executive.
Other attendees ranged from the expected, like bankers hoping to lend to successful projects, to the surprising. A representative from Hodo Group, a textile company, wanted information on mining projects in Madagascar.
China is also focusing on what it calls "development zones" for Chinese companies in Africa, aimed at helping small and medium companies get access to credit and government channels.
"We are setting up the zones to help them access resources, and find and get access to local governments, partners and projects that are suitable to their size," Xing said. "The governments there like it because they have an intermediary bigger than just that one company and we like it because we can keep track of our companies, especially if there is a problem."
Keeping track of these smaller players, which are becoming the face of China in Africa, is increasingly important to maintaining Beijing's effort to secure resources in Africa without exploiting its people.
At the Chambishi copper mine in Zambia, for example, which is operated by China Nonferrous Metal Mining Group, there have been disputes over wages and safety. But one of the worst accidents was not in the mine itself but at an explosives supplier, Beijing General Research Institute of Mining and Metallurgy, when an explosion killed 46 workers in 2005.
And some Chinese contractors who have won infrastructure deals with the lowest bids have finished their projects late and well over budget because they failed to anticipate safety and labor regulations.
"In a broad sense, as Chinese companies flood into Africa, there is a big risk of disorderliness. There's a big risk that unfavorable incidents could turn hearts and minds against China," Xing said.
Beijing has designated the copper belt of Zambia, where the Chambishi mine has attracted a cluster of companies in service and secondary industries, as its first development zone in Africa. Chinese companies have signed deals to invest a total of $900 million in the region, according to the Zambian government.
"It's a huge and complex project and it has the potential to be disorderly. Instead we decided to make it a model for how Chinese can participate in the industrialization of Africa," Xing said.
A second zone would be in Nigeria, where the Chinese oil company CNOOC last year purchased a $2.7 billion stake in the Akpo field, Xing said. The country, one of the major African oil producers, is a magnet for Chinese traders selling clothing, shoes and electronics.
Chinese investment in Africa hit $6.4 billion at the end of last year as companies ranging from Huawei Technologies, the giant telecommunications equipment maker, to small players like Zhejiang Huayou Cobalt Nickel Materials, made inroads around the continent.
African economies are expected to grow faster in the first quarter of this century than they did in the past 25 years, creating opportunities for Chinese companies, said Yao Guimei, an Africa researcher at the Chinese Academy of Social Sciences.
Big Chinese-African deals have diversified away from infrastructure. This year, Industrial and Commercial Bank of China agreed to pay $5.6 billion for a 20 percent stake in Standard Bank, which is based in South Africa, in a move that should fuel Chinese investment in the rest of the continent.
The Chinese-African investment conference in Beijing in December coincided - perhaps not coincidentally - with a meeting of European and African leaders in Lisbon, where Senegal's president, Abdoulaye Wade, warned a "slow, bureaucratic" Europe that it risked being outpaced by China and India in the race to invest in Africa.
Despite hand-wringing in some European capitals over the Chinese expansion in Africa, Joshua Eisenman, a fellow at the American Foreign Policy Council, said there was probably more complementarity than competition.
"I don't think that China's efforts in Africa necessarily run contrary to those of the United States and Europe because, let's face it, when was the last time the United States or Europe built infrastructure in Africa?" he said. "I don't see it as a zero sum game. They are involved in different things."
China's first jumbo aircraft company gets March deadline for take-off
January 07, 2008
China has set a March deadline to establish its first jumbo passenger aircraft company, as it moves to positions itself among countries technically capable of manufacturing large jets.
Huang Qiang, secretary general of the Commission of Science
Technology and Industry for National Defense (CSTIND), told Xinhua on Monday a director and a chief engineer of research would be appointed by then to make sure "the work goes as planned".
Previously, Shanghai Securities News reported the start-up would only be responsible for the design and assembly of jumbo aircraft, while the production of components and parts would be left to other aviation enterprises.
It was the latest development of the research project approved in principle by China's Cabinet, the State Council, last February.This was to make the country capable of building aircraft with a take-off weight of more than 100 tons, or planes with more than 150 seats.
Currently, only the United States, Russia, France, Germany, Britain and Spain have the capability to build jumbo aircraft, with Boeing and Airbus taking a lion's share of sales in the international market.
Just before the New Year holiday, Chinese Premier Wen Jiabao visited the Avic I Xi'an Aircraft Industry (Group) Company to give a pep talk on the manufacturing of jumbo jets. Last year, the company made China the fourth country to develop its own advanced fighter aircraft -- the "Jian 10".
During his talks with technicians, Wen emphasized a China-made jumbo aircraft as a "significant strategy" of the country. This would lift the country's competence in the global market as a slew of technical breakthroughs, especially in engine, materials and electronic equipment, were to be made.
The maiden flight of the ARJII1, China's first 90-seat regional jet, widely viewed as a step closer to jumbo jets, was scheduled for this year.
Source: Xinhua
Two of the key support levels for the STI that are quoted in the market place are the 3300 level and the 3000 level. We had highlighted the 3000 level as the worst case downside support level in our 2008 strategy report, stating that it represented 7 year mean price to book valuations. Yet, the way, we see it, there is very little in charts that suggests that the index could head down to the 3000 level in the near term. The low volatility in banking stocks is one of the reasons why we believe that a near term low is in the making. Additionally, some of the stocks in the sector are trading near previous lows on low volume. The STI has so far corrected marginally below 3300, yet there is no major sign of panic and the index's performance thus far is encouraging. Even, if the index breaks below the 3300 level, we think there will be secondary supports.
Watch out also for a marginal decline in the HSI towards 26600. If HIS registers a marginal decline and rebounds, then the odds are that an important low could have formed for both the STI and the HIS. All said, we still maintain the view, that the present decline is a buying opportunity and we highlight some of the laggard index stocks.
1. Capitaland - Stock at $5.95 is trading at a 1 year low and off by 30% from May 2007 high of $8.50. Support at $5.70-5.80.
2. City Dev - Another laggard. 2007, high was $17.90. At $12.56, stock has declined by 30%. Support at $12.20-12.20.
3. SGX - 2007 high was $17.20. Prior lows in 3Q07 and 4Q07 were in the $12.00-12.10 range. Stock has declined by 29% at present $12.10 level. Support is at current levels. If the $12.00-12.10 range breaks stock could head towards $11.60.
4. SembCorp Marine - Stock had fallen to a low of $3.82 from a high of $5.70. At current level of $4.23, the stock is showing positive relative strength to the STI over a 5 week period. Support level is at $4.14. Resistance is at $4.52
5. DBS - Peak in 2007 was at $25.00. From that level, it had corrected towards $18.70-19.00, 4 times. This represents an important floor. Stock is currently at $20.13. Volatility has been relatively lower as opposed to 3Q07 and 4Q07. Recommend accumulating between $19.60-20.00.
6. CapitaCommTrust - The stock reached a high at $3.32 in 2007 and since then it has corrected to a low of $2.11. Current price stands at $2.14. DPU for FYO8 is projected at $0.097. This provides a yield of 4.5% as at current $2.14. Next support level is stands at $1.95-2.00 range. Our fundamental price target is at $3.04.
7. CapitaMall Trust - Stock had fallen from a high of $4.32 in June 2007 to a low of $2.96 in August. At present the stock stands at $3.18 and is consolidating between $3.10-3.52. At $3.18, the stock offers a yield of 4.5% based on consensus DPU of $0.146.
8. SIA- Stock has fallen from a high of $20.00 to a recent low of $16.30. This represents an 18.5% decline. At present $16.70, the stock is trading at 1.3x historical P/B ratio. Support is at $15.80-16.00.
Best Regards
K Ajith
China Eastern Airlines Institutional Holders Wary Of Planned Air China Offer
HONG KONG (Dow Jones)--China Eastern Airlines Corp. (CEA) shareholders may have rejected Singapore Airlines Ltd.’s HK$3.80 a share bid for a stake in the carrier, but that doesn’t mean they’re convinced the parent of rival Air China Ltd. offers better prospects for the airline’s future.
The widely expected rejection Tuesday cleared the way for Air China’s parent, China National Aviation Holding Co., or CNAHC, to make a HK$5.00-plus counterbid for China Eastern that may also involve Hong Kong’s Cathay Pacific Airways Ltd.
CNAHC is promising to plow ahead even though the Shanghai airline insisted Singapore’s flag carrier is still its partner of choice and it won’t accept a strategic tie-up with its rival.
Some institutional investors are now eyeing the Chinese airline’s competitive bid warily, questioning whether or not the rival carrier can or even wants to turn around struggling China Eastern.
Despite rejecting Singapore Airlines’ bid, shareholders approved a separate resolution appointing Singapore Airlines’ chairman, Stephen Lee, and its chief executive officer, Chew Choon Seng, to China Eastern’s board. Although the two will not take up their seats because the bid was defeated, the fact that shareholders backed the two executives shows they believe the Singapore carrier’s management can benefit China Eastern.
CNAHC “hasn’t made a good case for why they should own China Eastern,” said one institutional shareholder, who declined to be identified.
The shareholder, who had been approached by CNAHC when it was still considering a competing bid, said the airline’s presentation focused too much on why China would suffer from China Eastern joining up with Singapore Airlines.
In contrast, “Singapore Airlines came with a clear-cut case, but pity for them... were not able to strike a deal in a timely fashion.”
CNAHC will make a formal offer for a stake of up to 30% in the Shanghai carrier within the next two weeks.
CNAHC has said Singapore Airlines’ proposal was inferior because it didn’t offer the synergies that can be created by the cooperation of two major China-based airlines.
Singapore Airlines and its parent, Temasek Holdings Pte., have thus far resisted raising their HK$7.2 billion offer for a combined 24% stake, but indicated they haven’t given up on the deal just yet.
SIA spokesman Stephen Forshaw said Wednesday: “We remain committed to exploring the partnership with China Eastern. Singapore Airlines is not walking away from this deal.”
“China Eastern remains keen to explore the partnership with us. They see us as a good fit for their business. And we see China Eastern providing the right platform for our interest in China,” he added.
Some institutional shareholders would like to see the two return with a new deal.
Raymond Heche of Willferfunds Management Co. S.A. in Luxembourg, which according to Thomson Financial has about 2 million H shares, said he preferred a tie-up between China Eastern and Singapore Airlines over Air China, but deemed the offer HK$3.80 a share too low. “The market wants a price close to what it’s been valuing (China Eastern) at for six months now and that’s between HK$6 and HK$8 a share, not HK$3.80.”
China Eastern’s shares in Hong Kong have changed hands sharply above the HK$3.80 offer since it resumed trading on Sep. 3, a day after the Singapore Airlines tie-up was officially announced. It is currently trading at a near 80% premium over the original sale price.
Even if CNAHC does put forth a richer offer, which must still be approved by the Chinese government and regulators, Heche said he doesn’t think acceptance would be positive in the long run for CEA.
“I wouldn’t like to see consolidation in China... China is a big country and having only a single dominant carrier for the whole country isn’t a good idea,” he said.
Some institutional shareholders also questioned the potential synergies between China Eastern and Air China.
Even if Air China succeeds in a bid “I’m not sure it means dominance for Air China. It depends on how the routes play out,” said a shareholder at a fund management firm, who did not want to be identified.
In a report on China Eastern Wednesday, Fitch Ratings said it believed it was important for Chinese airlines to partner with international carriers given the need to boost their competitiveness amid ongoing industry deregulation.
The ratings agency said it “considers strategic partnerships with strong international players as an important step for Chinese airlines to improve their management expertise, in terms of operational efficiency, route allocation and yield management.”
In addition to management expertise, a China Eastern tie-up with a foreign investor instead of CNAHC would boost the Shanghai carrier’s long-term value, analysts said.
Stalemate Likely As CEA Unwilling To Accept CNAHC Offer
Institutional investor sentiment aside, it’ll be an uphill battle for Air China to get in with China Eastern. Li Fenghua, chairman of China Eastern Airlines and president of its parent, state-owned China Eastern Air Holding Co., reiterated Tuesday that Singapore Airlines is the best potential investor for the carrier.
“China Eastern Airlines won’t introduce Air China as a strategic investor because acquisition among the three largest airliners will hurt China’s aviation industry,” Li said.
That stance is a considerable obstacle to Air China’s ambitions. China Eastern’s parent, which owns a near-60% controlling stake in the Shanghai airline, can veto any proposal by CNAHC.
But that doesn’t spell success for Singapore Airlines either. Without a higher offer price to woo China Eastern’s Shanghai and Hong Kong-listed shareholders, the airline’s tie-up with the Singaporeans will be nearly impossible to drive through.
The other wildcard is the Chinese government, whose stance on the situation is unclear. The state-owned Assets Supervision and Administration Commission of the State Council, or SASAC, which overseas non-financial state companies and regulates M&A activity, has said little on the matter other than it supports foreign investors but that shareholder decisions should be made on market principles.
However, some analysts viewed the sudden recent appointment of the chief of CNAHC to head the country’s civil aviation regulator as a signal of tacit approval of his vision of Air China as a single dominant Chinese carrier.
Analysts said support for consolidation among China’s state carriers may be increasing, particularly as domestic competition has intensified in recent years.
Despite having a busy Shanghai hub, China Eastern has been losing money. An institutional shareholder sees China Eastern as “a good asset” but one that needs a partner “to take care of the financials.”
The Centre for Asia Pacific Aviation said Wednesday China’s former policy of keeping three main state carriers has become irrelevant as those airlines have established sizable operations at each others’ hubs in Beijing, Shanghai and Guangzhou.
“A rationalization of mainland (China) capacity could be crucial in 2008 to help bolster airline profitability in the face of higher fuel prices and a potential slowdown in international markets, as well as ease congestion at China’s main hubs, including Shanghai,” the think-tank said.
It said an Air China takeover of China Eastern would reduce domestic competition and help carriers raise fares, including the lucrative Shanghai-Hong Kong route.
A potential merger between Air China and China Eastern would create a super carrier commanding over 50% of the nation’s aviation market, according to analyst forecasts.
Morgan Stanley said in a note Wednesday it believes China Eastern’s resistance to CNAHC’s potential bid will ultimately be resolved “through more communication and possibly government intervention.”
Whatever happens, with Singapore Airline’s initial bid scuttled, and its reiteration Wednesday that it will not hike its offer, shareholders are in for a long fight.
“It’s a mud fight,” said one institutional shareholder. “The timing of the SIA deal was way too long... and on the other hand, the move from Air China was completely muddy.”
But time is of the essence for China Eastern, analysts say, given its dire financial position amid continued losses and piling debts. China Eastern’s chairman Li has said the airline won’t survive on its own without a much needed cash injection and management overhaul.
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