News from the East

08/11/2006 12:00 am EST

Focus:

Robert Hsu

Editor, China Strategy and Asia Edge

Fresh from his ten-day trip to China, Robert Hsu shares some of his observations on the country’s changing infrastructure and banking industry and gives his opinion and recommendation on three up and coming investments…

 

“China's booming infrastructure build-out continues, especially in Beijing. There were massive construction projects going on everywhere in the Chinese capital to get ready for the 2008 Olympics. (My new recommendation in the upcoming issue is one of the biggest beneficiaries from this.)

 

“Chinese banks are undergoing serious reforms to transform them from government-financing arms into real banks. This bodes well for the Chinese economy over time. The banking industry in China, however, is facing severe competition and valuations are not cheap. Chinese banks are trying to copy US and European banks to focus on high-end and fee-based businesses. I had dinner with two officials from the Bank of China, and I'll update you soon about what I discovered and what it means for us as investors.

 

China Mobile (CHL NYSE) moved higher again this week. Since the traditional voice business has grown saturated, the company has turned to mobile phone customization as its new growth engine. By pegging content, software, and services to its newly installed 3G terminals, China Mobile hopes to market these services to high-end users.

 

At the beginning of this year, 12 mobile phone manufacturers, including Nokia, Motorola, Sony-Ericsson, and Dopod, joined hands with China Mobile to become its customized terminals providers. I expect China Mobile will be the dominant force in customized mobile phones. Given CHL's strength, I'm raising the buy limit to $32.

 

CNOOC (CEO NYSE) and China Oilfield Services Limited are conducting due diligence studies to determine whether they should acquire a majority stake in Indonesia's biggest oil and gas drilling company, PT Apexindo Pratama Duta. CEO currently has monopoly drilling rights for the entire South China Sea, which may hold the largest untapped underwater oil and gas reserves in the world. Buy CEO whenever it is below $83.

 

“Good news for Taiwanese businesses and iShares MSCI Taiwan Index (EWT NYSE), the index fund that tracks them. The Taiwanese government is considering a plan that would allow multinational corporations to bring more employees from Mainland China for regional company meetings in Taiwan. It also reaffirmed earlier indications that by the end of the year more tourists from mainland China will be allowed to  visit Taiwan without passing through a third security checkpoint. These steps are Buy EWT below $13.”

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