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Trippon on China
06/16/2006 12:00 am EST
"Stock markets around the world have taken a hit, and Chinese shares were not immune," notes China expert, Jim Trippon. "The important point is that we do not think the correction is the starting point for a bear market." Here are two of his buys in the oil sector.
"China’s economic growth is on pace to reach 9.5% growth this year, which is 1.5% higher than the governments previous estimates. How big is this increase? Some developed European economies only manage to grow by 1.5% in a good year. Add to this growth estimate a correction about Chinese growth in the first quarter of 2006.
"New calculations indicate that the economy grew by 10.3% on an annualized basis during the first three months of the year. Is it too much? The Finance Ministry says it may opt for a second round of interest rate increases in China this year in order to bring growth under control. Another quarter percent rate increase within China is nothing for investors to fear. It’s a sign of responsibility.
"PetroChina (PTR NYSE), China’s biggest oil company is one of the main beneficiaries of the government’s recent decision to raise prices for gasoline and diesel fuel. As an upstream oil supplier in the Chinese petroleum industry, PetroChina has gained the most in a 20% rise in crude oil prices this year.
"Like many other stocks in emerging markets, PetroChina stock dipped briefly on news that the US Federal Reserve intended to raise interest rates. But, PetroChina’s income is not directly affected by US rates, and share prices recovered by the end of the month.
"PetroChina has managed to retain the 34% gain it delivered our model portfolio so far this year. With a P/E of just over 11, a market cap of almost $200 billion, and a dividend of more than 3.5%, PetroChina remains a solid buy.
"China National Offshore Oil Company (CEO NYSE), known as CNOOC, continues to perform like the poster child of China’s booming economy. Every month brings new ventures and breakthroughs. CNOOC recently made history as it brought the first shipment of liquefied natural gas (LNG) from Australia to China. The company is a major partner along with BP in the Northwest Shelf Australian LNG venture.
"When complete, CNOOC’s LNG venture will deliver 30 million tons of liquid natural gas to 11 terminals near China’s heavily industrialized cities. Ultimately this project will bring about a major shift in China’s energy consumption and power generation industry as well as reducing pollution from other fossil fuels.
"As if this milestone weren’t enough, CNOOC has also brought China’s largest natural gas field on stream in the South China Sea. The DF 1-1 field is expected to generate almost 100 billion cubic feet of natural gas per year.
"CNOOC stock has declined slightly in concert with other Chinese oil companies as investors were disappointed by the size of a price increase mandated by the government. In the long term, CNOOC’s prospects remain very bright and we feel the company’s $32 billion market cap and 2.5% dividend remain a very attractive buy."
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