One of the benefits of being a fund manager is the amount of interesting, seemingly trivial but occasionally relevant information that crosses one’s desk. For instance, did you know that if you give the keys of a 250 tonne truck to a Zambian who has previously only ridden a bicycle, he will not immediately drive it at the rated 30 kph down a narrow, steep incline? While this may not gel with empirical evidence from the London mini-cab fraternity, it goes some way to explaining why a start up mine in Zambia disappointed in its’ first quarter of production. The geology and metallurgy was fine, but productivity was low. The mine should have another 120 quarters ahead of it for the drivers to speed up, yet the market has been flushing away Australian listed Equinox knocking 20% off the market value in two days. Once again the markets prove that having a lot of information does not necessarily result in correct pricing. We view these types of events as heaven-sent opportunities to invest in a genuinely scarce resource at a cheap price, and were happy to hoover up stock from the short-termists out there. » Read more: Mark Fleming – July 2009
Archive for August, 2009
Mark Fleming – July 2009
August 14th, 2009Irrational exuberance
August 7th, 2009Most Western Central Bankers, and virtually all private sector economists have now declared the recession over. Probably around three months late, but better than their forecasting record going into said recession.
Consensus growth for China in 2010 is now 9% plus. Most stocks in our universe are at or above pre-Lehman’s levels. A lot of respected (?) commentators are talking ‘V’shaped recoveries on the back of a rebound in inventories. Property markets appear to be stabilising in the West and moving sharply up to near record levels in parts of the East. Strategists are writing lengthy tomes about how it is now safe to ‘add beta’ to your portfolio and sell all the boring defensive stuff. Always best to leave the first 500% or so for someone else. We have heard of short memories in financial markets, but this is ridiculous. » Read more: Irrational exuberance
Chinese wind
August 7th, 2009The speed at which China is addressing its voracious appetite for energy and dire environmental issues is not being given enough attention.
While the country has suffered a slow down in economic growth due to the global credit crisis the government has prioritised the development of wind energy as an area for major investment. At the end of 2008 China’s installed wind capacity was 12,200MW. Already, during the first half of 2009, China’s capacity is reported to have increased by over 10,000MW and by the end of 2009 will account for around one third of the world’s installed wind generating capacity and rank second behind the United States, surpassing Germany and Spain. » Read more: Chinese wind
Jeff Coggshall – July 2009
August 18th, 2009Chinese policymakers have reiterated three or four times that they are maintaining a ‘moderately loose’ economic policy but actions speak louder than words. The PBOC has recently stepped up open market operations to mop up liquidity, and increased the duration of its bills to the one year maximum in order to increase their effectiveness. The CBRC has proposed a ban on the cross holding of sub-debt by Chinese banks – a move clearly aimed at reducing systemic risks. Given that current sub-debt is around 50% of the total in the system, this is more than just increased regulation or red tape. It is a policy that removes liquidity from the system, and makes it more difficult to extend liquidity in the future. Whether you call these moves a real change in policy or merely “fine tuning”, they nonetheless represent a change in behaviour and rhetoric that will lead to further changes in expectations which markets will not ignore. » Read more: Jeff Coggshall – July 2009
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