China’s Power Sector to Open to Private Investment State Grid Corp of China, the country’s dominant power grid operator, will open up parts of its business to the private sector, according to Chinese news agency, Xinhua. This is in keeping with Premier Li Keqiang’s pledge for more private investment in the country’s state owned oil and power projects. Sinopec and Citic Group have also recently announced plans to open up their businesses to private investment.
The government-owned State Grid Corp, which operates 80 percent of China’s power grids, will open up three areas, including direct current ultra-high voltage (UHV) power transmission, pumped storage power stations and electric vehicle charging equipment, to private investors. Overall, China plans to install 70 gigawatts of pumped storage power capacity by the end of 2020, compared with the current 21.5 gigawatts available now. The country also plans to have 4,000 electric vehicle charging stations built by 2015. State Grid plans to build nearly 10,000 more charging stations from 2016 to 2020. State Grid also plans to invest 380 billion yuan ($61 billion) in power grid construction this year, one third of which will be spent on UHV power grids, according to its “social responsibility report” in February.
Strategists See China Buying Opportunity
Mark Mobius, who runs Templeton’s Emerging Markets Group with approximately $50 billion in assets under management, said he’s buying technology stocks after a global selloff left companies such as Tencent Holdings trading at “reasonable” valuations according to a Bloomberg interview. Mobius cited Tencent as an example, “it’s come down about 20 percent and that’s a pretty good correction,” otherwise declining to name any specific stocks he’s buying. JPMorgan Asset Management Ltd. has also said they are acquiring technology shares. “We have been selectively buying some internet stocks in Asia,” said Grace Tam, a Hong Kong-based global market strategist at JPMorgan Asset. “As long as they can deliver earnings growth, we still believe they have strong fundamentals. We’re still quite positive on the sector in the medium term,” Bloomberg reported.
Mobius believes that investor concern that a flood of initial public offerings in the technology industry would weigh on existing share prices has eased. “A lot of people were concerned because of the number of new issues coming in the U.S. market,” Mobius said. “I think that’s probably coming to an end now.”
Alibaba Continues to Invest
Alibaba, China’s largest e-commerce company by sales, recently made an offline move by announcing an investment in brick-and-mortar retail stores. The South China Morning Post reported that the company spent $692 million in acquiring a 9.9% stake in Hong Kong-listed Intime Retail, one of China’s largest department store operators. Intime runs 28 department stores and eight shopping malls. The deal includes establishing a joint venture that operates independently. Analysts view this as a potential industry model unifying online and offline merchants, payment services and big data analysis.
It’s not the first time the two companies have joined together—Intime participated in several promotion campaigns on Alibaba’s Tmall platform, including the “Single’s Day” sale on November 11, 2013, considered China’s version of Black Friday for shoppers.
Local Broker Insight:
Sealand—Q2 Outlook—The new leadership is determined to promote reform allowing the market to play a decisive role in resource allocation, which is reflected in market-oriented risk pricing, indicating that debt defaults may be commonplace for the foreseeable future. This could cause credit to tighten and interest rates to rise. The government’s tolerance for slow economic growth may be stronger than expected and employment pressure may not surface as soon as expected. http://www.ftsfund.com/index.shtml
Galaxy—Policy—The PBOC tightened supervision on internet finance last week and is considering establishing a monitoring and statistical data system targeting shadow banking, in order to strengthen supervision of
financial innovation. Meanwhile policymakers are encouraging market-oriented financial innovation to activate and efficiently utilize existing capital. http://www.chinastock.com.hk/en/ACG/ContactUs/index.aspx
CICC- A-share Strategy- Growth to recover and reforms to speed up
• Looking ahead to 2Q14, we expect growth to recover and reforms to speed up, with the latter helping to relieve the pessimism about “old economy” blue chips, while going against high valuation “new
economy” small-/mid-caps, prompting further style change.
• We maintain our forecast for 15~20% return on A-shares in 2014, supported by earnings growth, while reforms will ease challenges, improve sustainability and unleash market values depressed by
pessimistic expectations.
• Our model portfolio continues to tilt toward “old economy” sectors and we continue to recommend overweighting cyclicals, mass consumer goods with reasonable valuations and to avoid sectors with higher valuations and not yet stabilized fundamentals.
• On SOE reforms, we favor new entrants, enterprises likely to improve earnings further, those likely to see turn around, and also those likely to see hefty dividends.
• Also look for IPOs and preferred shares issuances to begin in 2Q 2014. http://www.cicc.com.cn/index_en.xhtml?locale=en