Shayne Heffernan: China Stocks Undervalued as Growth Continues
AutoNavi (AMAP), Baidu (BIDU), Sina (SINA), Sohu (SOHU)
China stocks are trading lower today and that may continue as the concerns regarding Europe continue and uncertainty regarding power shifts in the USA and at home in China weigh on markets.
Last week China’s Shanghai Composite Index advanced 2.5 percent. Shares have risen on speculation China’s economy may be stabilizing after a report showing the manufacturing industry growing for the first time in three months last month.
China’s foreign trade will continue to pick up in the fourth quarter of the year, the Ministry of Commerce told Xinhua on Thursday.
Exports growth jumped to 9.9 percent year-on-year to US$186.35 billion (HK$1.45 trillion) in September, up from 1 percent in July, and 2.7 percent in August, official data showed.
China’s foreign trade hit US$2.84 trillion in the first nine months, up 6.2 percent year-on-year.
“In view of the economic situation home and abroad, the country’s foreign trade in the fourth quarter is expected to maintain the rebounding momentum that emerged in September and grow at the average speed seen in the first three quarters,” said Yao Jian, spokesman for the MOC.
However, Yao cautioned that China still faced a “grim and complicated environment” in foreign trade, saying global demand remains anemic while international competition and trade frictions were intensifying.
The sovereign debt crisis in Europe and a slow recovery in the US have sapped China’s exports, a major driver of growth in the world’s second largest economy.
Apart from boosting foreign trade, the MOC will continue to support the domestic consumption with various measures to facilitate distribution, crack down on counterfeits and develop e-commerce, Yao said.
Retails sales are likely to stabilize and improve further in the fourth quarter as government reforms promote fairer income distribution to benefit the poor, the social security network will continue to expand and the shopping season approaches, Yao said.
Buying value is the key to all successful long term investing, and right now that value is in many China stocks.
AutoNavi (AMAP), Baidu (BIDU), Sina (SINA), Sohu (SOHU) stand out as value.
AutoNavi Holdings Ltd (ADR) (NASDAQ:AMAP)
AutoNavi Holdings Limited is a provider of digital map content and navigation and location-based solutions in China. At the core of its business is a nationwide digital map database that covers approximately 3.3 million kilometers of roadway and over 20 million points of interest across China. Through its digital map database and technology platform, it provides integrated navigation and location-based solutions for the Chinese market and users, including automotive navigation solutions, mobile location-based solutions and Internet location-based solutions, and public sector and enterprise applications. On March 10, 2011, it acquired the remaining 80% equity interest in Beijing Xiejin Technology Development Co., Ltd. (PDAger). On March 24, 2011, the Company, through AutoNavi Information Technology Co., Ltd. (AutoNavi Technology), acquired Shanghai eTag Information Technologies Limited (eTag). In February 2012, the Company and TomTom NV introduced HD Traffic.
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Business Development Director – Private Client Group,
Heffernan Capital Management
3 Raffles Place #07-01
Bharat Building Singapore 048617
Tel: +65 6329 6408
Fax: +65 6329 9699
Baidu.com, Inc. (ADR) (NASDAQ:BIDU)
Baidu, Inc. (Baidu) is a Chinese-language Internet search provider. Baidu serves three types of online participants, which include users, customers and Baidu union members. The Company offers a Chinese-language search platform on its Website Baidu.com. It provides Chinese-language Internet search services to enable users to find relevant information online, including Web pages, news, images, documents and multimedia files, through links provided on its Websites. It designs and delivers its online marketing services primarily on its Baidu.com Website to its online marketing customers. During the year ended December 31, 2011, it had approximately 488,000 active online marketing customers. Its online marketing customers consist of small and medium enterprises (SMEs) throughout China, large domestic companies and Chinese divisions or subsidiaries of large, multinational companies. On July 20, 2011, the Company acquired 62.01% of the interest of Qunar.
SINA Corp (NASDAQ:SINA)
SINA Corporation (SINA) is an online media company serving China and the global Chinese communities. The Company’s digital media network of SINA.com (portal), SINA.cn (mobile portal) and Weibo.com (social media), enable Internet users to access professional media and user generated content (UGC) in multi-media formats from the Web and mobile devices and share their interests to friends and acquaintances. SINA.com offers distinct and targeted professional content on each of its region specific Websites and a range of complementary offerings. SINA.cn provides information and entertainment content from SINA portal customized for wireless access protocol (WAP) users. It generates its revenues from online brand advertising, MVAS and fee-based services. SINA provides advertising, non-advertising and free services through SINA.com, SINA.cn, Weibo.com, MVAS, other businesses and SINA products. Advertising revenues relate to online advertising revenues derived from SINA.com.
Sohu.com Inc. (NASDAQ:SOHU)
Sohu.com Inc. (Sohu) is a Chinese online media, search, gaming, community and mobile service group. The Company operates matrices of Chinese language Web properties, and it operates multi-player online games and Web-based games in the People’s Republic of China. Its businesses consist of the online advertising business, the online game business, the wireless business and the others business, among which online advertising and online games are its core businesses. On December 15, 2011, the Company sold assets associated with the business of 17173.com (the 17173 Business), a game information portal in China to Changyou.com Limited (Changyou). On August 1, 2011, The Company acquired Focus Yiju Network Information Technology Co., Ltd. (Focus Yiju). On May 11, 2011, Changyou acquired, through its VIE Gamease, 68.258% of the interests of 7Road Technology Co., Ltd. (7Road).
Soon-to-be-released economic data will show China’s inflation continued to ease in October on falling food prices, but rebounds might occur during the last two months of the year as the economy stabilizes, experts have forecast.
Both Lu Zhengwei, chief economist at the Industrial Bank, and Li Huiyong, chief economist at Shenyin Wanguo Securities, told Xinhua that the consumer price index, a major gauge of inflation, will be seen to have expanded at 1.8 percent year-on-year in October.
Lian Ping, chief economist at the Bank of Communication, projected flat CPI growth from September to October, because non-food prices have gained despite declines in food prices.
Food prices account for a third of the weighting in the calculation of the CPI. Latest data from the Ministry of Commerce showed that the average wholesale prices of 18 staple vegetables in 36 major Chinese cities dropped 0.4 percent over the week from October 22 to 28.
According to Lu, the CPI is likely to hit the bottom in October and go upward again in November and December along with a pick-up in the country’s economic growth.
The economy has slowed to a seven-quarter low of 7.4 percent in the third quarter dragged down by lackluster external and domestic markets. But economists are widely expecting a small rebound in the fourth quarter.
In September, the CPI increased 1.9 percent year-on-year, easing from a 2-percent rise in August amid government tightening measures to cap price growth, data from the National Bureau of Statistics showed.
The NBS is scheduled to release the CPI for October on November 9.
China is set to become the largest economy in the world by 2025 with a nominal GDP value of US$38 trillion. Fueled by a strong urbanization rate, a favorable corporate environment, huge infrastructure investment and the largest working age population, the Chinese economy will finally transform itself from being the manufacturing site of the globe to one of the biggest and largest consumer markets in the entire world.
New analysis from Frost & Sullivan, Mega Trends in China: Macro to Micro Implications of Mega Trends to 2025, has identified over 10 key Mega Trends that will accelerate China’s nominal GDP growth rate to around 16 per cent by 2020.
Urbanization will bring about spatial changes to the country, resulting in the emergence of 13 Mega-cities, 4 Mega-regions, and 6 Mega-corridors in 2025. The Mega Cities will grow to become the major hubs for commercial and business activity, contributing nearly US$6.24 trillion to China’s GDP in 2025.
“By 2025, an estimated 921 million people or 65.4 per cent of China’s population, will live in cities, which is about 2.6 times of the United States’ total population”, says Archana Amarnath, Programme Manager, Visionary Innovation Research Group, Frost & Sullivan.
She also added that the growth in Chinese mega cities will supplement Asia’s growing role as the world’s financial center. In fact, by 2020, Hong Kong and Shanghai are expected to occupy two places in top five global financial centers.
In addition to urbanization, the demographic composition of China will also emerge as a key determinant of the country’s growth over the next decade. China will have the largest working age populations of the world. The younger demographic, or Gen Y (15-34 years old), will account for 14.6 per cent (335 million) of China’s total population in 2025 adding to the social prowess of entire Asia. China and India combined will have about 37 per cent of the total Gen Y population in 2025.
China’s potential workforce will be one of the biggest with 922 million individuals in the working age (15-64 years) category in 2025, which is roughly 22 percent of the potential global workforce (total number of people in the working age category).
The growing majority of urban and young consumers will shape the demands of the future influencing innovation and future products and solution.
Augmenting the growth in innovative business models and unique business solutions is the widespread growth in connectivity and digital infrastructure within the country. An ambitious space exploration plan and investment in broadband infrastructure and mobile connectivity will convert China into one of most connected economies in the world. “A connected China will also see about 7 billion connected devices by 2025 ranging from mobile phones and gaming consoles to cars and televisions,” predicts Archana Amarnath. Individuals will be highly connected through mobile technology and social media. China is expected to have 1.7 billion mobile phone subscribers in 2025, with at least 70 per cent to adapt 3G or later services. Social networking users will more than double to reach 791.7 million in China by 2025 from 318.8 million in 2011.
In a bid to support this growth momentum, the Chinese government has announced to invest US$2.73 trillion on fixed assets of infrastructure such as power supply, railway, roads, urban public transport, water transport, water conservation, aviation and telecommunications between 2011 and 2015.
With infrastructure support and a favorable corporate environment, industries such as Logistics and Retail will flourish over the next decade. China’s logistics industry is expected to become the world’s largest in 2016, and is expected to hit US$1 trillion revenue mark by 2020. Retail sales, on the other hand, will hit US$15.8 trillion in 2025, overtaking Japan to be the second largest retail market in the world by 2015.
With so many growth opportunities, China is undoubtedly the most crucial economic center of the east. In fact, China’s growth is the main catalyst in the rise of Asia. However, understanding the composition and major trends of a country like China is more difficult than most because of its sheer size and complexity. Frost & Sullivan aims to bridge the gaps in understanding by offering an insight into the Mega Trends that shape China. Mega Trends, which are characteristically futuristic, macro and comprehensive, offers an exhaustive insight into the key drivers shaping China and provides a visionary outline of the country’s future.
The ‘Macro to Micro’ scenario analysis carried out by Frost & Sullivan presents the micro impact of each Mega Trend on a business and helps design the company’s future strategy for product and technology planning in China. Urbanization, for example, at the micro level, creates many investment opportunities in smart infrastructure and new market / business opportunities for innovative products targeting urban households.
By understanding the entire eco system of the Mega Trend, the most important segment of the value chain can be identified, which will redefine the company’s competitive position in the market.
If you are interested in more information on this study, please send an e-mail to Alice Chia, Corporate Communications – Asia Pacific, at email@example.com, with your full name, company name, title, telephone number, company e-mail address, company website, city, state and country.
Mega Trends in China: Macro to Micro Implications of Mega Trends to 2025 is part of the Visionary Innovation Research Growth Partnership Services program, which also includes research in the following markets: World’s Top Mega Trends to 2020 and Impact on Society, Cultures, Business, and Personal Lives (2012 Edition), New Business Models of the Future, Mega Trends for India, Africa and LATAM. All research services included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.
About Frost & Sullivan
Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today’s market participants.
Our “Growth Partnership” supports clients by addressing these opportunities and incorporating two key elements driving visionary innovation: The Integrated Value Proposition and The Partnership Infrastructure.
The Integrated Value Proposition provides support to our clients throughout all phases of their journey to visionary innovation including: research, analysis, strategy, vision, innovation and implementation.
The Partnership Infrastructure is entirely unique as it constructs the foundation upon which visionary innovation becomes possible. This includes our 360 degree research, comprehensive industry coverage, career best practices as well as our global footprint of more than 40 offices.
For more than 50 years, we have been developing growth strategies for the global 1000, emerging businesses, the public sector and the investment community. Is your organization prepared for the next profound wave of industry convergence, disruptive technologies, increasing competitive intensity, Mega Trends, breakthrough best practices, changing customer dynamics and emerging economies?
Heffernan Capital Management
Business Development Director – Private Client Group,
3 Raffles Place #07-01
Bharat Building Singapore 048617
Tel: +65 6329 6408
Fax: +65 6329 9699
Shayne Heffernan Ph.D.
Economist/Hedge Fund Manager
Shayne Heffernan oversees the management of funds for institutions and high net worth individuals. He is also an active consultant working with Corporations around the World.
He is recognized as one of the leading Economists in South East Asia, as well as the preeminent authority on ASEAN. His opinions and forecasts are widely read by decision makers in the region and Internationally.
Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.
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