A50 Tracker and HS China Enterprises Index (HKCEI) Technical Analysis

Just want to share the following two set of charts, seems like no charting tool can concurrently display two MACD, I've manually paste the A50 (using 2823.hk as proxy) and HSCEI MACD side by side to better analyze the two recent opposite trends.

In hindsight, should have been alerted in early August when HKCEI MACD was developing a stronger and stronger negative divergence.

Currently A50 is also developing a negative MACD divergence, will it develop further and it's a sign of A-share market correction?

I’ve no crystal ball but I am a bit cautious about the recent policy risk developing in China based on what I observed and heard:

• No action has been taken yet on the 5.6% July CPI figure which was announced last Monday
• Rumours of new housing loan policy with down payment increased to 50% and no new loan for 2nd home

For anyone interested in treasure hunt HK stocks, especially those new IPO listed since 2006, here is an analysis of all Hong Kong IPO performance for 2006 and 2007.

Morgan Stanley China A-Share Fund (CAF) suffered from its holdings in other China funds

On 15 March in my story “Comparison of two China A-share ETFs” I queried the CAF manager why he has invested 5% of investors’ money into other China funds:

“..I really cannot understand the reason for doing so when there are a whole lot of available alternative companies in the Chinese market. So practically 5% of CAF is a Fund of Funds. This raised a question whether the CAF manager has really tried his best effort to increase the return, may be a sign of agency problem. Though 5% of the NAV is not a significant amount, I always believe minor issue can help us uncover bigger truth…”

Today I have analysed CAF’s portfolio performance using its published March holdings, I noticed that out of the 11 funds the CAF manager invested in, he exited 5 of them while 1 new “Great Wall Jiufu Core Value Equity Fund” was added.

Based on its March report the 7 funds it holds incurred a loss of 74% (US$16M) which is around 3.7% of total CAF NAV. Full analysis of its individual position return is here.

So my original query is still valid. I still challenge the CAF manager why investment in other China funds is a better option than picking stocks by himself when there are over 1500 A-share stocks he can choose from in Shanghai and Shenzhen.

Worst still he has exited the best performing fund out of the original 11 he picked, which is the iShare A-50 Tracker Fund (2823.HK).

6-month relative performance of CAF vs. iShare A-50 Tracker Fund (2823.HK):

Disclousre: I have no position in the above ETFs

Global Sources (GSOL) needs better Investor Relationship Management

Global Sources (GSOL) yesterday announced a very aggressive expansion plan for its 2008 exhibition business.

Major highlights:

Two China Sourcing Fairs in Dubai, which are expected to boost sales capacity to 900 booths, up from 500 in 2007;

Two China Sourcing Fairs in Shanghai, increasing booths available from 450 in 2007 to over 1,000 in 2008

One International IC-China Conference & Exhibition (IIC-China)in Chengdu, and, co-located with IIC-China in Shanghai and Chengdu, two Electronic Components Pavilions, increasing booth capacity from 1,000 in 2007 to over 1,500 next year.

Altogether there will be a 74% increase in number of booths to these major shows in 2008, adding to the increasing booth selling price this should be very good news to investors.

However, market either did not pick up the news or was impartial to its 2008 plan, share price of GSOL dropped a further 4% yesterday.

From the date I first wrote about GSOL on 17 May, its share price has gone up by 37% but recently free fallen significantly with only 3% gain left.

I still believe GSOL has a very solid business fundamental. Besides, with recent confirmation of Alibaba's HK listing scheduled in 2H, GSOL should deserve a re-rating.

So what’s the problem with GSOL?

It’s all about poor investor relationship management and too heavy insider shareholding.

I’ve done a comparison table as follows:

As can be seem, GSOL’s insiders (which essentially are the management team) are holding 71% of all issued shares, versus the other Chinese comparables I’ve chosen (there is no direct comparable, I’ve picked some China internet companies for the ‘China concept’) which is several times higher.

Besides, only 10% of company shares are hold by institutional investors and mutual funds, again it is significantly lower than the others.

The roller coaster share price which doesn’t truly reflect the company’s business fundamental is largely due to the light trading volume (0.2M)

Mr. Merle Hinrichs is the founder and CEO of the company, who has been running the company for 35 years. I do pay high respect to the management team for the solid business they have built, however, I wish Mr. Hinrichs can spend more time with institutional investors and increase their interest in the company.

The next 6 months probably is the best time to do that so as to leverage institutional investors’ interest in China B-B companies as created by the coming Alibaba’s listing.

For Jack Ma, founder and CEO of Alibaba, he shall seriously consider acquiring GSOL. With Alibaba and GSOL combined, it will be the clear leader in China providing integrated B-B trading, marketing and exhibition business.

GSOL will announce its Q2 result this Thurs, tighten your seat belt for another roller coaster ride!

Disclosure: I am LONG GSOL

I like Dolby (DLB)

China has committed digital broadcasting for its 2008 Olympic, I expect that is a good reason for Chinese to replace their old TV with a flat panel high definition version. Japan already has 80% of prime time programs delivered in HD, that for US is 67% (based on 2006 data). Are you ready to switch?

Dolby Laboratories Inc. (DLB) delivered another impressive report card yesterday, quarterly net income increased by 53% YoY. With 74% of revenue from licensing it’s a low risk business model as it doesn’t need to worry about inventory and fluctuation in component costs as faced by manufacturing companies. DLB is also a very profitable company with 28% net margin.
Click here for the detail numbers

DLB is the most direct proxy for digital home as its technologies covered a very wide spectrum of consumer electronic devices. Just in case you don’t know, you are paying DLB when you buy a new digital TV as all new TV shipped into US must be digital and DLB is a mandatory feature under the ATSC standard (the US version of digital TV standard).

For all Americans you must replace your existing analogue TV with a digital version (or buy a digital set top box which DLB will also collect royalty) very soon because analogue TV broadcasting in US is planned to stop in 2008. (though it may be delayed).

When you buy a new high definition DVD player, no matter it’s Blu-ray or HD-DVD you are paying DLB.

If you have bought a Playstation 3 or Microsoft Xbox for your kids, you have also paid DLB for the Dolby sounds.

Have you upgraded your PC to Windows Vista yet? DLB also get a cut of the price you paid for each license of Vista Home Premium and Ultimate editions, which according to Microsoft's most recent earnings call that accounted for the majority of Vista shipments. In fact DLB expects PC (35%) and digital TV (15%) will be 2 major sources of revenue for 2007.

Still not sexy enough? Earlier this year DLB acquired BrightSide Technologies which is a company in display technology that enables high dynamic range on LCD monitors.. I talked to a friend of mine who is a researcher in LED/LCD technology, he said BrightSide is the real market leader in terms of the number of fundamental patents it owned. (fundamental patent means the technology is so important that almost all other display technologies would likely infringe it and hence need to license it from the patent owner) DLB said that it is extending its imaging initiative to the consumer market with focus on enhancing LED backlit LCD displays using high dynamic range technology. The technology makes the whites whiter and darks darker, which dramatically enhances image quality and expect to begin seeing some initial revenue from this technology in fiscal 2008.


I like checking company’s recruitment advertisement to see what is going on inside the company. Recently I saw the following HK based openings from DLB:

Compliance Officers
* Work closely with HQ in the USA and Sales Offices worldwide to monitor licensee’s usage reports to ensure compliance to licensing agreement
* Research, investigate, and analyze market data to verify usage reports from licensees
* Assist in enforcement of Company’s intellectual property rights
* Manage international trade shows pre-planning and on-site coordination
* Experience/knowledge in IP Industry or handling of legal documents is an advantage
* Strong communication, negotiation, interpersonal, and analytical skills
* Good command of written and spoken English and Mandarin
* Native Korean speaker with good command of written and spoken English


The biggest issue for licensing model is how to get licensee to report and pay royalty. Seems like DLB is very aware of it and it is a good sign that it has a plan to deal with it.

Currently traded at ~27x forward earning DLB is a reasonably priced high growth stock.


Disclosure of interest: I’m LONG DLB