Thank you to Siwei

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michael k.

Oct 1, 2007, 6:59:18 AM10/1/07
to Lets Think China
Although things have been quiet in this discussion group, that
certainly does not mean that the H share market has been quiet.

FXI is up over 60% so far this year! The information on this webpage
has been helpful in convincing me that the AH gap play is a good
strategy, and I have profited a lot from this strategy. I hope many
others of you have done the same. I would like to thank Siwei for his
many informative posts.

Looking forward, there still seems to be a lot of potential upside for
H shares, based on ongoing QDII quota allocations to mainland mutual
funds, the promise of the "direct train" pilot program which many
people think will start later this month, potential purchases by the
CIC (Chinese governmental entity that will invest in foreign assets,
including HK shares), possible yuan appreciation, the fact that the A
share premium is still 55% (based on the AH index) despite the huge H
share gains, etc. But, the 50% gain in FXI the past month and a half
has been so steep, that the chances of a big drawback are significant
if there is any bad news, such as a major delay in the direct train
program or more credit-related problems in the US. We just have to
have the stomach to handle some potentially huge volatility.

Let's hope for the best.

Siwei Zhong

Oct 1, 2007, 11:17:35 AM10/1/07
to Lets Think China
Hi all,

I started this LetsThinkChina blog in Feb and a lot events had
happened in the market. For a number of reasons I've not been posting
new story lately and I don't know whether I will continue doing it.
Anyway I hope what I've written were useful to all of you in your
China investment strategy.

Apart from the A-H play, the biggest win I predicted was China
Construction Bank where I've written a story using a totally non-
traditional valuation approach based on its historical non performing
loan. At that time all i-bankers were promoting ICBC. Now CCB is
proved to be the winner from both share price appreciation perspective
and all financial performance measurements. I am holding CCB and I
will keep that as one of my only 2 PRC banking picks. The other one is
China Merchant Bank.

The one I missed most was China Mobile, I never imagined such an
irrational jump in this stock. Though it's and will still be the
bigger player in PRC telecom market, the way i look at 3G new license
is that there will be at least 1 very strong competitor - China
Telecom, who will compete and take market share from CMCC. As a matter
of fact, I've not seen in any telecom market deregulation will do any
good to operators' EPS growth. Data usage ramp up and compensating
air time and ARPU lost is just a story, at least not for China in the
coming 2 or 3 years. Anyway, this is not the 1st time that I am
fundamentally correct but failed to capture money making
opportunity. I am trying to tell myself sometime I must follow the
crowd. Investment is about making money and not to prove who is right
or wrong. You can be right but not making money because you cannot
convince yourself to follow the trend. If I am to bet on PRC telecom,
I will only bet on CHina Telecom and China Mobile. I've no crystal
ball to tell whether re-structureing of the whole industry will really
happen or not. Just remember in telecom, the strong guy will become
even stronger, just bet on the strongest guy and you will not be too

GSOL is picking up again these 2 weeks, I am still betting on its re-
rating potential when Alibaba goes public in HK (supposed to be this
month). I will sell at that moment because GSOL CEO is not a good
story teller from the quarterly calls I have listened to. Jack Ma
(CEO and founder of Alibaba) will surely beat GSOL from IR
perspective. [I've a story on GSOL about its poor IR/story telling
skills and I said that's the reason for its depressed stock price].
Again it takes both good story telling CEO and good business
fundamental to sell to wall street people.

I am still holding China Life (2628.HK) which I acquired during the
Feb correction at HK$20. Now it's HK$44 but I will keep this position
for long long time.

I have not written any story about the Aug correction as there were
too many people who wrote about it. Now I want to tell you what I've
done during that week if you are still interested. In Aug I was 100%
invested and I've no more money to invest and I didn't want to use
margin during such a volatile period. I was holding all my positions
during that crazy week without selling any single shares. In hindsight
if I were not 100% invested I would take that chance to buy some more
cheap stocks.

There are only 3 months left for 2007. Will there be any significant
correction to H and A share market? It's hard to tell and based on
what I experienced this year so far I will not make any prediction.
Anyway I will buy at any dips as I still believe the China bull has
not ended yet. As long as PRC is still earning more forex than it can
spend, the money have to go to the market (both stock and property).

In early 2006 I told myself 2006 to 2008 will be once a life time
profit opportunity in China market, now half is gone and so far I am
doing reasonably well and I wish in the 2nd half I can beat my 1st
half record.

I will only write very occasionally if I do write again, I would
like to wish all of you a record breaking profit year for 2007 in
advance !


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