China – Reorganizing the car industry

Hang Seng (13.447)  Shanghai B (152,00)  USD/CNY (6,8330)

This week the market will chew on the old data once more and focus on different rumours about old or coming numbers.

The domestic sentiment is still positive and will trade higher. Hang Seng is very bid due to the large component of real estate and banks, so up as well, following the world.

A currently battled sector might be worth to have a look at.

If you believe that car producers will belong in the future equity portfolio (it will in mine portfolio), then the Chinese government has decided how the Chinese controlled car industry will be shaped in the future. The interesting plan was published 20th March.

According to a State Council statement it plans to reduce the number of automakers before end 2011. The spilt will be to two or three groups with an annual production volume and sales of 2 million vehicles each. The next level is expected to be four or five companies at 1 million each. Today 14 carmakers produces 90% of the domestic sales, the number of companies is planned to be 10 in 2011.

The 4 surviving major groups are indentified:

FAW

Dongfeng Motor Corp

Shanghai Automotive Industry Corp.

Chang’an Auto

These companies have been encouraged to pursue mergers and acquisitions. How and in what direction, the statement didn’t mention.

A bit interesting about SAIC, China’s largest automaker by sales, as this group is thought to be in the second wave of mergers. The company merged with Nanjing Auto in 2007.

Please note that the above information is not a trade recommendation, but is seen as important information when building the equity portfolio…..

Maybe a word about the February Chinese auto that jumped 25% y/y. No doubt that the reduction in taxes on cars with small engines had an effect but the February 2007 number was very low due to Lunar New Year. The rumours also say that the government and public departments bought many cars in February, though unconfirmed as usual.

I keep the target, but know that I am under pressure like with the rest of my views..

Targets: Hang Seng 11.000     Shanghai B 110

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