Krane Funds Advisors is the advisor to the KraneShares CSI Five Year Plan ETF and the KraneShares CSI China Internet ETF. Enclosed is a weekly update of China’s economic and capital markets activity that was assembled by KraneShares and its Shanghai based partner, CapitalVue. Please contact us if you have any questions or comments.
Major News and Events
• Goldman Recommends China Stocks: Goldman Sachs recommended going long China stocks and short copper as a way to get exposure to quickening global economic growth in 2014, alongside weak commodity prices and the desire to own risky but profitable stocks. The recommendation is Goldman’s fourth top trade idea for 2014.
• British PM China Trade Mission: On a 3 day official visit to China British Prime Minister David Cameron and Chinese Premier Li Keqiang commited to enhance cooperation in areas including high-speed railway, nuclear power and finance. Concerning the financial sector, the two sides discussed conducting offshore RMB business in London and Chinese banks’ opening of branches in Britain. The two countries also agreed to expand bilateral high-tech trade and support cooperation in aerospace, offshore wind power and other new energy development in a sign of the commitment to better relations between the two large economies.
• Cleaning up Coal Production: The State Council published new rules to curb growth in coal mining production capacity. It said the government will not approve new coal mines with annual output of less than 300,000 tons and will gradually close down mines with annual output of less than 90,000 tons.
• IPOs Set to Unfreeze: China’s financial regulator released new guidelines for IPOs following an almost 1 year freeze on new listings. Also allowed for the first time will be the issuance of preferred shares by banks. The IPO freeze will be lifted following new rules that pave the way for a switch to a U.S.-style registration system and letting investor demand determine pricing. 50 companies will be ready for IPOs by end of January and the watchdog may also begin a trial program for letting companies sell preferred stock.
• Harvard Business Review – China Internet Numbers are Staggering: According to a report by the Harvard Business Review, the size of the Chinese Internet is staggering. There are almost 600 million Internet users in China now, more than in any country in the world — next highest is the U.S, with 254 million. That’s just 44% of the Chinese population compared to 81% in the U.S., so this gap will continue to grow. For example, if every province in China achieves a 50% penetration rate, 135 million new Internet users will come online. 78.5% of Chinese users access the web from their mobile devices (compared to 63% in the U.S.), and many of the most popular services, like WeChat, exist only as a mobile application.
Local Broker Insight:
CICC: Investment Strategy
Its 2014 investment strategy report forecasts an annual yield of 20% for the Shanghai Composite Index, the first double digit returns in 4 years. The reason for the optimism was due to CICC seeing improvement in fundamentals, as well as better short-term and long-term earnings prospects, and the earnings improvement was not due to sharp deleveraging, but was brought about falling cost and higher efficiency. In addition, CICC believes there will be higher production efficiency in the future generated by the reform measures. www.cicc.com
SWS: Real Estate
After the Third Plenum, there is a very strong wait-and-see attitude in the market. The market is still interpreting the rules about the property tax, homes with limited property rights, residential land transfer, and rural construction land market operations. Transaction enthusiasm is not high and transaction volume continues to shrink. Still stick to our recommendation of growth stocks backed by strong earnings and thematic stocks which we believe will benefit from the implementation of the Third Plenum. www.swsresearch.com
SWS: Telecom
We think that after China’s telecom carriers obtain 4G licenses, the iPhone 5S will become a crucial weapon for China Mobile to develop the 4G business, as well becoming the core engine driving Apple’s whole industrial chain’s rapid growth during the first half of 2014. New devices that will be rolled out to market in 2014 also include the iWatch, iTV, Google Glass, Galaxy Gear2, that we believe will drive market expectations about future market room, becoming the core driver for related companies to have relative valuation advantages. www.swsresearch.com
SWS: Environmental Protection
The public is mainly concerned about environmental safety and we are optimistic about sub-sectors in this field, which include air quality management, industrial water treatment, drinking water safety and soil protection. We believe the peak for the air quality management market will continue and leading players in the industry will see rapid growth momentum in 2014 and 2015. www.swsresearch.com
ATTENTION: This is not an investment recommendation or a solicitation to become a client of Krane Funds Advisors, LLC (“Adviser”). Unless indicated, these views are the author’s and may differ from those of Adviser or others in the firm. We do not represent this as accurate or complete and we may not update this. Past performance is not indicative of future returns. For additional information and important disclosures, please contact Brendan Ahern at (646) 218-9852 or brendan.ahern@kraneshares.com. This communication is solely for the addressee(s) and may contain confidential information. We do not waive confidentiality by mis-transmission. Contact me if you do not wish to receive these communications.
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