Sunday, February 3, 2008

The repercussions of China's big chill

Not as far behind MarketWatch as we usually are, we had a little spec. chambered*.
(we haven't pulled the trigger)

From MarketWatch:

As the weather in China sends investors and the general population diving for cover, watch out for opportunities in the big chill.
Blame it on the weather. That would seem the obvious response to the chaos in China as the country grinds to a halt under the worst freeze and snow in 50 years.

The current La Nina cycle, characterized by unusually cold ocean temperatures in the Equatorial Pacific, hasn't just flattened 223,000 houses and left 100 million people across China shivering. It's also sent a deep chill through mainland-related equities. Investors have taken cover by selling first, with the A-share market down to lows not seen since last July.

By dramatically exposing the frailties of China's quasi-market economy, the weather chaos should also have policy repercussions. Some comfort is that at least it's a short week ahead with markets closed from Wednesday for the Chinese New Year holiday.

But with more freezing weather forecast, the question remains how bad will it get? Prime Minister Wen Jiabao has been doing his utmost to ensure this La Nina season does not become his own equivalent of George W. Bush's Hurricane Katrina.

Of course he didn't draw that particular parallel, but rather compared the wintry havoc that's already caused an estimated $7.5 billion in direct economic damage to that caused by the SARS outbreak five years ago....
...Sitting back until things have thawed over the Lunar New Year could be the safest course of action. But for long-term investors, if we substitute blood on the streets with 800,000 Chinese on a train platform we could have similar chaos. Anyone who was brave enough to buy during SARS in Hong Kong did very well. Many H-share commodity stocks in Hong Kong are now down a staggering 60% from their peaks -- which may yet look a bargain six months from now.
*From Red Cat Journal:

One beneficiary of China’s weather crisis
With snow storms sweeping across China and shutting down large swaths of China’s industry, one company could come out ahead. Just a few months ago, Bosideng’s (3998.HK) IPO was seen as a flop as the shares headed straight down from its IPO price of HK$3.28 in October to a low of HK$1.73 recently. The company is a leading player in the down apparel market in China and sells better-quality down jackets under brands such as Snow Flying and Bosideng (a Chinese homonym for the city of Boston). Its market share is over 30%, well ahead of competitors.

Just a few weeks ago, investors seemed to believe that Bosideng was a casualty of global warming. Temperatures in December and early January were a bit higher than is seasonally normal. How things change. Now, China is facing winter weather so bad that power plants have had to shut down as coal shipments are held up and millions are stranded at train stations trying to make it home by Chinese New Year. At the Red Cat Journal, we aren’t the types to speculate in weather, but now seems an appropriate time to review Bosideng. Besides the fact that down jacket demand may get a short-term boost, here are some other things going for Bosideng:...MORE