China's $586 billion stimulus package announced today

Today China announced a $586 billion spending package to boost domestic demand while vowing to carry out "moderately easy monetary policies." China's Cabinet has approved a plan to invest $586 billion on infrastructure and social welfare by the end of 2010. They also say they will adopt an "active" fiscal policy and will offer tax help of 120 billion yuan to enterprises.



Key Questions/Points:
1) This dwarfs the $150 billion amount the U.S. spent in February to stimulate the economy.

2) Where will the Chinese get the $$$$? That question alone will cause a ripple effect as people will anticipate that they will be buying fewer U.S. treasury bonds and take more of their currency reserves back home with them to spend on their local economy. This might hurt U.S. stocks/bonds further and cause the U.S. stock market to pull back.

3) This should boost Chinese-based companies that do the bulk of their business in China and sell primarily into their economy/market. Remember 50% of their economy is export related.

Dan Ross
http://www.BetterBizIdeas.com

Supply / Demand gone upside down in China?

First off, China finds some serious amount of natural resources in their country. It will take time to be mined & shipped (needs infrastructure) but it does have global implications for supply/demand for natural resources over the long-term. They want to import less and use more domestic sources of commodities.

http://english.people.com.cn/90001/90776/90884/6520297.html

Since the beginning of September, major Chinese steel manufacturers have announced to slash production upon falling steel prices on the domestic market.

http://english.people.com.cn/90001/90778/90857/90860/6517391.html

The Aluminum Corporation of China Ltd. (Chalco), the country's largest aluminum producer, said on Wednesday it would cut production in line with falling demand and prices. The total capacity reduction would be 720,000 tons a year or 18 percent of the company's annual production, said a company statement.

http://english.people.com.cn/90001/90776/90884/6520346.html

My take: It should be noted that the Chinese were GOBBLING up every conceivable natural resources before the Olympics to feed their economy. Since then, they have really quieted down and, as supply/demand levels are coming back to true equilibrium, the volatility in the commodity and financial markets has been STAGGERING.

I personally think they got wind of the slowing economy and put the brakes on their purchases of raw materials. After all, they would bring in the raw materials and export products worldwide. Their economy is 50% export right now from what I have read. They are trying to stimulate internal, domestic demand to offset the weakness in their export economy. I expect quite a few more rate cuts in China over the next 1-2 years, which will stimulate their consumer economy at some point.

Dan Ross
http://www.BetterBizIdeas.com

China: Significant Policy Change in Property Market - loosening of credit to increase domestic consumption

So the number of real estate deals is down 72% Y-Y during their holiday period. Some people are now taking a "wait and see" approach and are staying on the sidelines. People say that the remaining potential buyers are "marginal" buyers who have to stretch to afford a home.

http://english.people.com.cn/90001/90776/90884/6510493.html

The government is easing credit requirements to buy property. This should help to sustain real estate prices. Please note, however, that Chinese finance rules say down payments of 30% are being reduced to 20%. I guess they never heard of our 0% down financing here stateside and the wonderful results it has generated :)

http://www3.uobgroup.com/assets/pdfs/Flash_1023A.pdf

Source: http://english.peopledaily.com.cn/200208/09/eng20020809_101182.shtml

Then there is the rumor of U.S. Investment banks selling their chinese owned properties. Chinese politicians/developers are worried that this may cause a drop in commercial real estate values.

http://english.people.com.cn/90001/90776/90884/6511242.html



My take: There are a few investment plays on China real estate.

XIN - XINYUAN Re: Holdings (real estate development) - It focuses on developing residential projects consisting of multiple residential buildings that include multi-layer apartment buildings, and sub-high-rise or high-rise apartment buildings, as well as auxiliary services and amenities comprising retail outlets, leisure and health facilities, and kindergartens and schools. The company also develops small scale residential properties; and leases certain properties, including an elementary school, a clubhouse, a kindergarten, and parking facilities, as well as offers real estate related services, including landscaping and installing intercom systems. As of December 31, 2007, it completed 14 projects with total gross floor area (GFA) of approximately 1,001,199 square meters; 7 projects with a total GFA of 1,069,144 square meters under construction; and 6 projects with a total GFA of 1,452,013 square meters under planning. The company was founded in 1997 and is headquartered in Beijing, the People�s Republic of China.

EJ - E House Holdings - Basically a real estate broker. More volume = more profits (once they cover their costs) This is the safer play on chinese real estate development. It primarily offers real estate agency services to real estate developers of residential properties. The company also provides real property brokerage services, and intends to provide listing and brokerage services, which include sales and rentals. E-House (China) Holdings focuses its secondary real estate brokerage services in three metropolitan areas within China, including Shanghai, Wuhan, and Hangzhou, as well as in Hong Kong and Macau. Its real estate consulting services include land acquisition consulting and real estate development consulting; and other consulting services to investors interested in purchasing businesses with land or other real estate assets, as well as to banks, real estate trade associations, and governmental property and planning agencies. The company�s real estate information services comprise the CRIC system, which supports its primary and secondary real estate services, and consulting and information services. The CRIC system consists of real estate sales data in China covering information on land, residential, office, and commercial spaces, as well as real estate related advertisements. The company was founded in 2000 and is headquartered in Shanghai, the People�s Republic of China.

Dan Ross
http://www.BetterBizIdeas.com/

Economic Slump is hitting China workers now

China's exports are drying up due to a weakening economy. Mattel and others don't need as many factories working given rising inventories and weakening demand.

I have to wonder if all the Chinese scandals are catching up to the economy as well. Toys with lead paint a few years ago, milk this year.....

Dan Ross

http://www.BetterBizIdeas.com

Blog on China from Reuters

Interesting blog worth bookmarking....

http://blogs.reuters.com/summits/category/china-century-07/

Dan Ross
http://www.BetterBizIdeas.com/

Top Mobile Browsing Nations

http://www.marketingcharts.com/interactive/us-mobile-web-surfing-about-to-surpass-uk-levels-5836/bango-top-10-mobile-web-countries-july-2008jpg/

So China will have the largest number of mobile users in the world soon. If they don't already.....
Europe has historically led the world in mobile penetration. Part of this is related to a history of POOR landline, where the countries use different wiring in homes (copper in U.S.) but aluminum and other lines have been used in Europe. Additionally, you have to remember that Europe's infrastructure is MUCH older (historic buildings cost a TON to retrofit so many never did) & they had TWO world wars on their turf, where much of the infrastructure was blown apart and never rebuild completely.

Getting back to the point.....

The U.S. is about to become the largest phone browsing nation in the world....Interesting little factoid. All we need now is to enable payments via cell phones (Like Japan/Europe) and we will exit the cell phone "dark ages."

Dan Ross
http://www.BetterBizIdeas.com

Chinese Stocks to Double....Street.com link

The video below talks about how Chinese stocks are being SIGNIFICNATLY undervalued right now. I 100% agree with him.
http://cosmos.bcst.yahoo.com/up/player/popup/?rn=289004&cl=9469944&src=finance&ch=633473

Additionally, a new Earthquake in China, of 6.2 magnitude. Last time that happened CPSL stock soared due to thoughts re: re-building and the need for steel. Granted, it should help GSI more than CPSL as CPSL primarily is involved in sheet metal (think appliances, end devices and not steel beams.)
http://news.yahoo.com/s/ap/20080831/ap_on_re_as/china_earthquake

Dan
http://www.BetterBizIdeas.com

Some Economics of Food.....for thought :) UPDATE

This is an update with some updated factoids for people to chew on.....VERY interesting numbers

from http://www.pigsite.com/

"Processing is the most vulnerable player in the Canadian pork industry today, says Bouma, with the U.S. holding a significant advantage in terms of capacity and labour intensity. Comparing the productivity of the top U.S. and Canadian processors highlights this gap. Today, the U.S.’s largest 29 plants process 21,000 hogs per day while Canada’s largest 29 produce an average of 3,200 hogs per day. The result? U.S. producers put an estimated six to 10 more dollars in their wallets per hog sold compared to their Canadian counterparts. "

So how does this compare to Chinese Pork/Production???

From HOGS/FEED (two chinese pork raisers/processors). Here are their recent filings. Both companies are growing ENORMOUSLY. Wall Street seems to indicate that HOGS is the most undervalued of the two.

HOGS
http://biz.yahoo.com/prnews/080811/cnm010.html?.v=59

FEED
AgFeed Industries bought 4 more Hog Farms recently and has been consolidating the industry throughout China.

From http://www.forbes.com/

http://www.forbes.com/2008/08/22/china-agricultural-imports-markets-econ-cx_tw_0821markets29.html?partner=yahootix

"Given the rapid rise in food prices in China amid increasing wealth, investors could stand to gain from exposure to U.S.-listed Chinese companies with 90% to 100% exposure to China, such as AgFeed Industries (nasdaq: FEED - news - people ), American Dairy (nyse: ADY - news - people ), HQ Sustainable Marine Industries (amex: HQS - news - people ), Synutra International (nasdaq: SYUT - news - people ) and Zhongpin (nasdaq: HOGS - news - people )."

I saved the best udpate for last :) Looks like this company is hiring some a very senior american to help develop its company.

http://biz.yahoo.com/iw/080820/0426486.html

"NASDAQ Global Market listed AgFeed Industries (http://www.agfeedinc.com/) is a US company with its primary operations in China. AgFeed has two profitable business lines -- premix animal feed and hog production. AgFeed is China's largest commercial hog producer in terms of total annual hog production as well as the largest premix feed company in terms of revenues. China is the world's largest hog producing country that produces over 600 million hogs per year, compared to approximately 100 million hogs in the US. China also has the world's largest consumer base for pork consumption. Over 65% of total meat consumed in China is pork. Hog production in China enjoys income tax free status. The pre-mix feed market in which AgFeed operates is an approximately $1.6 billion segment of China's $40 billion per year animal feed market, according to the China Feed Industry Association."

Original Post

China, 1995: average person eats 55 lbs of meat per year. China, 2007: average person eats 116 lbs of meat per year. Here is what I can't tell you. What kind of meat?

It takes 15 lbs of grain to produce 1 lb of meat. According to expert figures, China has increased grain requirements to 350 million metric tonnes in 2007 from 150 just 12 years earlier. That’s a +133% increase just so the average Chinese citizen can enjoy more meat.

Fertilizer is used to produce grain to feed the animals – in fact, for every pound of beef produced, a steer must consume 15 pounds of grain. This further drives up the demand and the cost of fertilizer. So we can understand why there is a demand for more fertilizers and why stocks such as Potash, Mosaic, etc. are going through the roof right now.

How much feed does a pig need though? I'll get that in the upcoming days.....Info. re: beef isn't applicable. Why?

Pork occupies a special place in the Chinese diet and economy. It is estimated that the Chinese consume more pork than any other nation. This makes sense given that pork is also estimated to account for two-thirds of the average Chinese's protein intake. According to this article below

http://www.smallcapinvestor.com/smallcapinsights/china/2008-07-17-check_on_china_agfeed_industries

"It is prepared in almost every conceivable way, from roasted whole suckling pigs, commonly served during holiday .easts, to sweet and sour pork, whose Americanized version is a Chinese restaurant staple."

Dan Ross
http://www.BetterBizIdeas.com

Chinese Demand for Oil vs. their own supply of oil

The bottom line is that their supply isn't keeping pace with their demand and, as this is happening, oil is spiking. They've basically sent people throughout the world to approach companies about purchasing their supplies + they are aggressively pursuing oil themselves via CNOOC, a nationalized Chinese oil company listed on the NYSE.

Dan Ross

http://BetterBizBooks.com

ABAT & CPSL - first two stock purchases

I want to remind everyone that my investment criteria is really what is driving these investment picks. Aside from that, I want growth at a REASONABLE price. I am also sticking to micro/small cap stocks so that, in the event that one of these companies continues growing at staggering pace for the long-term, I can ride it all the way up :)

First Pick
ABAT - $3.50 purchase price. Today @ $4.19 but trending up nicely. This seems like an easy pick for me.

$9 1 year target price, which would be 28x an estimate of $0.32 for the year. Given the 100% Y-Y growth, 8 cent Q1 per earnings result, etc I could make the case for a higher price but, until I hear about expanded production capacity, which would likely crimp the EPS growth, I'll keep my estimates conservative. It would be dumb to imply a higher multiple given that I know additional capacity will likely be purchased/added, which would hurt EPS ...

http://biz.yahoo.com/iw/080512/0395840.html

1) Strong Revenue Growth
2) Strong EPS Growth
3) Very strong backlog - Likely going to add capacity as well to fuel next stage of top-line growth

Revenues for the first quarter ended March 31, 2008 were a record $10,031,969 compared to $5,363,923 for the same 2007 period, an increase of approximately 87%. Advanced Battery Technologies realized net income of $3,848,478, representing $.08 per share, after $629,445 in taxes for the quarter ended March 31, 2008. For the quarter ended March 31, 2007, the Company's pre-tax income of $1,338,036 was identical to its net income, representing $.03 per share. The 2008 quarter represents about a 187% gain in net profit.

Mr. Fu added, "Our production capacity at current normal operating hours is about $45 million per year. With a backlog of approximately $57 million for delivery throughout the next 21 months we are confident we can continue to meet our aggressive targets going forward, while still developing company favorable options to increase added production capacity. This growth reflects the continued demand for our advanced PLI battery technologies and related products. In addition, we are optimistic for the balance of 2008 and beyond.

3) Hybrid Motorcycles. If you are going to be ECO friendly this is the route to go. HUGE export opportunity + growth opportunity throughout Asian economies.
http://biz.yahoo.com/iw/080303/0369315.html

#2 Pick - CPSL (China Precision Steel) - Investment thesis is growth in middle class in china = more domestic demand for products that require steel. Simple as that.

Avg. cost of $4.80, today @ $7.96. I have made a nice paper profit on this stock so far, purchasing multiple lots at various prices. I think somehow speculators are thinking it is a play on rebuilding China following the earthquakes there in the last 2 weeks. Truth be told, they are wrong. These guys aren't doing steel for buildings but people see a potential supply/demand imbalance in the short-term and are driving this stock up on CRAZY volume.

China Precision Steel, Inc., a steel processing company, engages in the manufacture and sale of high precision cold-rolled steel products in China. The company produces and sells precision ultra-thin and high strength cold-rolled steel products with thicknesses ranging from 7.5 mm to 0.03 mm. It also provides heat treatment and cutting of medium and high carbon hot-rolled steel strips. The company's precision products are primarily used in the manufacture of automobile parts and components, plane friction discs, appliances, food packaging materials, saw blades, textile needles, microelectronics, packing, and containers. It sells its products in China, Nigeria, Thailand, Indonesia, and the Philippines. China Precision Steel was incorporated in 2002 and is headquartered in Sheung Wan, Hong Kong.

Analyst Estimates - 0.24 this year and 0.37 next year or 35% growth. $.37 x 35 multiple = my target price of $12 - $13. They are adding ANOTHER production line with the current one running at 50% capacity, which would normally worry me except their recent results show 61% top line growth!

http://finance.yahoo.com/q/ae?s=CPSL

Recent EPS announcemnt

http://biz.yahoo.com/prnews/080516/cnf041.html?.v=2

Operating income was $4.4 million, up 136.9% from $1.9 million in the third quarter of fiscal 2007. Operating margin increased to 23.5% from 16.0% in the year ago period. <--I think this is due to increased factory utilization....

Sales growth was Great!
Revenues for the third quarter of fiscal 2008 were $18.7 million, up 61.3% from $11.6 million in the third quarter last year. The increase in sales revenue is due to increased production and exports of low carbon hard-rolled steel coils and subcontracting income during the quarter.

Technical Analysis
This stock is trading its entire float of shares day in and day out. Anyone short the stock is getting crushed as the stock is getting more and more volume and going up on that volume. The weekly chart below indicates that the RSI can still go up for a bit before it is overbought so I will wait to sell any shares for the time being. Part of me wants to lock in some profits around $12 and let the stupidity decline but I will determine what I am going to do in a few days since the momentum on this is BEYOND amazing right now. I'll play it by ear. I expect the stock to take a "breather" before going higher into the $12, possibly $17 area.

I'll post pick #3 sometime in the next few days. I bought a few shares of this company last week and, while I am up slightly, I want to see how the EPS results cause the stock to shake out tomorrow. No matter how I slice it I want MORE shares at my original buy-in price so a 10% drop would be greatly appreciated :)

Dan Ross

http://betterbizideas.com/