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Investment Dr. Alyce Su, founder of China Queen Capital, specializes in investment management managing portfolios consisted of investment opportunities originated from China’s growth and internationalization, both outbound and inbound. Hereinafter is her advice on investment strategy in the four coun- tries of BRICs except China, UAE, South Africa, Europe and Asia. Dr. Alyce SU on China Overseas Investment Strategy ing 70% of MSCI Latin America’s total Part. Rio Polimeros, Brenco, OuroFi- market capitalization of US$ 1.4 tril- no, Valepar. lion. Internally Brazil has five econom- (ii) Brazi l ia n domest ic con- ic zones. The rise of Brazil’s middle sumption targets including Brasil class will bring opportunities in bank, Foods. real-estate, telecom, and consumer fi- (iii) Brazilian China export tar- nance. gets including Petrobras, Vale. Brazil Investment Logic For China investing in Brazil, Russia three potential tactics: Russia Investment Background (i) BNDES and BNDESPar’s Russian economy is driven by holdings in the financial, natural re- (a) oil price (b) Ruble/US$ exchange source, infrastructure/railway, food/ rate, managed e x ter na l ly v ia t he agriculture, utilities, both 26 listed energy-stabilization fund, internally and 8 unlisted companies, where (a) through ta x and price control, to Shares BNDESPar wants to sell, Chi- buffer its sensitivity to commodity Brazil na can buy if price is right (b) Shares cycle. Three major state-owned banks Brazil Investment Background BNDESPar does not want to sell, Sberbank, VEB, VTB, provided li- B r a z i l ’s N a t i o n a l B a n k f o r China can extend loans (c) Industries quidity during 2008 financial crisis. Economic and Social Development BNDESPar want to support by mak- Debt level is high for almost all Rus- (BNDES) (similar role to China De- ing loans, China can invest in industry sian enterprises, with revolving loans. velopment Bank) is Brazil’s leading leaders. Recently, Ruble’s appreciation pres- long term loan provider to Brazilian (ii) Brazilian companies benefit- sure against the US$ came from (i) domestic enterprises. BNDES’s subsid- ting from Brazil’s domestic consump- stronger energy price (ii) weaker dol- iary BNDESPar holds shares of Brazil’s tion growth. lar (iii) global liquidity into emerging listed and unlisted companies. Since (iii) Brazilian companies benefit- market. Russia would tax the energy 2010, BNDES and BNDESPar have ting from exporting to China. income into the fiscal gap first, once been restructuring investment portfolio filled put into the energy stabiliza- by selling shares in Fibria and 2.4% of Brazil Investment Targets tion fund, while pegging Ruble to a Banco de Brasil for cash for making fu- Applying the above investment basket of US$ and Euro. This handles ture loans. It’s 5.3% shares in VALE is logic, we have: stronger energ y price and weaker widely expected to be the next liquidity (i) BN DES a nd BN DESPa r dollar well, except global inflow into event. owned targets including (listed) Fi- Russia. Russian resource companies Brazil’s external position in Latin bria, Klabin, Vale, Gerdau, Brasil have begun the wave listing in Hong America is similar to China in Asia, Foods, Copel, Light, CESP, CPFL Kong Stock Exchange, much Russian producing 43% of 2009 Latin America’s Energia, MPX Energia (unlisted) wealth has also been accumulated in total GDP of US$ 3.7 trillion, occupy- Brasiliana, BomGosto, CEG, Telmar Russia’s sovereign wealth fund. 66
IRR 27% to 60%, payback period less than 5 years. India Investment Logic China’s investment logic towards India may leverage India’s younger demographics, playing LP to India’s GP, or playing co-GP to India lead- ing conglomerates, extracting IRR out of India. Once China has taken a position in India, China can export its infrastructure building capability, benefitting its own investment. Such “infrastructure for equity” strategy is different from the “loan for resource” strategy deployed elsewhere. India Investment Targets Applying the above investment logic to India’s key industries, we have these Indian companies:Russia Investment Logic chocolate, ice cream. (i) Auto:MarutiSuzuki. Hero For China investing in Russia, (vi) Fertilizers: Good chemical Honda.the key is who you know, not what you producing capability. (ii) Consumer Staples:Colgateknow, so Russian private equity deals (vii) Financial Services: PSU, Palmolive (India). Dabur India.have often been done by giving an Private Bank, NBFC, 3 categories. Car (iii) Fertilizers:Tata Chemicals.interest-rate-free personal loan to the loan CAGR 13% to 15%. Mortgage United Phosphorus.owner of a company in exchange for a CAGR 13% to 18%. (iv) Financia l Ser v ices: PSUstake in the company. (viii) Healthcare: Generics indus- (Bank of Baroda), Private Bank (Axis try strong, US$ 53 bn to expire in the Bank), NBFC (Housing DevelopmentRussia Investment Targets near future. Finance Corporation). For China investing in Russia, co- (ix) Industries/Infrastructure: In- (v) Healthcare: Apollo Hospitals.investment may be key: dia 11-5 Plan budgeted US$ 500 bn for Biocon. Cadila Healthcare. (i) Co-invest with private equity new infrastructure. (vi) Industries/Infrastructure:divisions of major state banks, Sber- (x) Information Technology: 2010 Everest Kanto Cylinder. Sintex Indus-bank, VEB, VTB. CAGR 15% to 20%, adding 75,000 tries. (ii) Co-invest with Russian’s sov- new employees. (vii) Information Technology:ereign wealth fund for Russian resource (xi) Material/Cement: Oversup- HCL Technologies Ltd. Infosys Tech-IPOs in Hong Kong. ply, low capacity utilization. nologies. (xii) Material/Metal: Steel de- (viii) Material/Cement: ACC. mand still strong. Ambuja Cements.India (xiii) Media: FY10-12E digital (ix) Material/Metal: HindalcoIndia Investment Background entertainment 39% CAGR. Advertis- Industries. Hindustan Zinc. India’s f ledgling logistic system ing CAGR 15%. (x) Media: Dish TV India. Sunforced India to traditionally export its (xiv) Oil & Gas: Empowered TV Network. Zee Entertainment En-human resource to the west by software Group of Ministers increased price for terprises.outsourcing, pegging its growth to de- Gasoline, Diesel, etc. (xi) Oil & Gas: Bharat Petro-veloped countries’ capital expenditure. (xv) Real Estate: 7 categories: leum. Cairn India Ltd. Gas AuthorityToday, India’s major industry develop- Mumbai, Gurgaon, Noida, Greater of India.ments are as follows: Noida, Bangalore, Chennai, Hydera- (xii) Real Estate: Anant Raj In- (iv) Auto: 30,000R to 50,000R bad, average inventor y 11-month dustries. DLF. Housing Developmentpriced cars experience the most compe- (compared with 2008 4Q inventory 37- & Infrastructure.tition. month). (xiii) Telecom: BhartiAirtel. Idea (v) Consumer Staples: High (xvi) Telecom: 3G and Broadband Cellular. Reliance Communications.penetration low growth goods include Wireless Access licenses have been Tata Communications.soaps, detergents, tea. Low penetra- granted. (xiv) Utilities: Adani Power. JSWtion high growth goods include coffee, (xvii) Utilities: Power generators Energy. LancoInfratech. 67
Investment United Arab Emirates rich reserve underground, is not short of capital, except Dubai. Dubai tried to United Arab Emirates Investment become the financial center in United Background Arab Emirates by offering real estate Oil and natural gas are key asset to and infrastructure projects but over- the region. American Energy Informa- leveraged itself. Case in point, Dubai tion Administration counts the follow- Port World (DPW.DI), which is 80% ing 16 Middle East countries “Saudi owned by Dubai World, 20% owned Arabia, Iran, United Arab Emirates, by public. If Dubai World needs to Kuwait, Iraq, Algeria, Libya, Qatar, partially sell off for debt repayment, it’s Oman, Egypt, Syria, Yemen, Tunisia, holding Dubai Port World is the 4th Bahrain, Israel, Morocco” occupying largest port in the world, after PSA, global oil reserve 65%, and global natural HPH, APMT, these four ports occupy gas reserve 46%. Countries in the Gulf 29% of the entire world’s throughput Cooperation Council (GCC) included: measured in million TEU. Dubai Port Kuwait, Bahrain, Saudi Arabia, Qatar, World’s market share from 2005 to Oman, and the United Arab Emirates 2008 has risen from 2.5%, 5.9%, 5.8%, (UAE). Within the United Arab Emir- to 6.3%, since most of its counterpar- ates, there are Abu Dhabi, Dubai, Shar- data, of proven global reserves, South ties are in the emerging markets such as jah, Ajman, Umm al-Quwain, Ras al- Africa owns 80% of platinum and 57% China, India, Brazil, Russia, Indonesia, Khaimah, and Fujairah. 2010 first half of palladium, yet Johnson Matthey 2010 Mexico, Turkey etc, its estimated 2010 China imported oil from “Angola, Saudi platinum survey suggested South Af- to 2015 market share CAGR is 9.1%. Arabia, Iran, Sudan, Russia, Kuwait, rica’s production has topped at 2006 and Dubai Port World’s 2009 net profit Venezuela, Oman, Iraq, Kazakhstan, been declining since. On the contrary, is US$ 332.9 million, 2010 estimated Brazil, Yemen, Congo-Brazzavile, and China’s demand of platinum and pal- net profit US$ 424.1 million, with an the United Arab Emirates”, i.e. mostly ladium has been rising from domestic EBIT margin of around 20%. Middle East countries. jewelry and auto consumption growth. United Arab Emirates Investment South Africa South Africa Investment Logic Logic South Africa Investment Back- For China investing in South China’s investment logic towards Africa, Platinum and Palladium are a ground the United Arab Emirates, since China pure supply-demand play, i.e. a declin- South Africa has been a leading imports so much energy from the re- ing supply (South Africa) to a growing producer of precious metal (defined as gion, is what China can make from demand (China). gold, silver, plus the platinum group investing above the land, minus what metals including ruthenium, rhodium, China must pay for below the land. South Africa Investment Targets palladium, osmium, iridium, and plati- num, a total of eight elements) which Applying the above investment United Arab Emirates Investment are often used in the jewelry and auto logic, we have: Targets industry. According to MEG 2007 (xviii) ETF of Platinum and Pal- United Arab Emirates, given its ladium. (xix) Companies such as Eastern Platinum (a producing junior), or We- sizwe Platinum. Europe Europe Investment Background European companies that can still secure consumers from Brazil, Russia, India, China (BRIC) will continue to grow, when synergistic they may also introduce BRIC shareholders. Instead of “haves and have-nots”, this secular trend will separate the ones that still want to compete globally vs. the ones who just want to collect social welfare. Countries such as Germany, France, Switzerland, Czech, the Nordic, still 68
AG (4 3 %), Wa r t s i l a Asia Investment Logic (B) (45%), Weir Group America is likely to befriend (41%), Swiss Re (47%), Asian countries such as Japan, Ko- Cairn Energy Plc rea, India, Australia, and Taiwan.For (100%), Saipem (48%), China investing in Asia, the scarcity SBM Offshore (68%), is clean natural resource and political S e ven Ma r ine (63%), stability. Asian countries valuable to Beiersdorf (36%), Brisith both America and China are benefi- A m e r i c a n To b a c c o ciaries. (35%), Richemont (33%), A SM L Hold i ng N W Asia Investment Targets (50%), CSR plc (52%), Applying the above investment Ericsson (50%), Nokia logic, we have: (57%), STMicroelectron- (i) North Korea: peace. ics (50%), Portugal Tele- (ii) Japan: government debt. com (46%), Telefonica (iii) Taiwan: TDR. (41%). (iv) Malaysia, Australia, New (ii) European Zealand: natural resources, beaches,have high-tech manufacturing core companies with significant German real estates.competency to export. Countries that revenue, including Porsche A ml. (v) Papua New Guinea: naturalconsider finance expertise are com- Hldg (Xet) (28.6%), Volkswagen (Xet) resources.ing to Asia to acquire Asian high-net- (28.4%), Geberit ‘R’ (33.9%), Sued-worth customers. The rest European zucker (Xet) (32.1%), Tomra Systems “Sinosteel-Monaro MOU”countries are selling down shares of (39.2%), Allianz (Xet) (34.4%), Sky China Overseas Investment Strat-state-owned enterprises, real-estates, Deutschland (100%), Axel Springer egy done by Dr. Alyce SU of Chinaand remodeling museums for tourism. (79.0 %), Prosieben Sat 1 Med ia Queen Capital (HK) Ltd, helping anBesides BRIC consumers, European (69.5%), Kabel Deutschland Hldg. Australian Stock Exchange (ASX)companies that can secure German (100%), Loewe (59.6%), Schulthess listed company Monaro (MRO) sellingconsumers may also be considered Group (30.7%), Gagfah (100%), Fiel- its Kyrgyz Uranium asset to China’srelatively competitive. mann (81.4%), PraktikerBauheim. leading state-owned enterprise Sinos- H ldg (71.4%), Douglas Hold ing teel. Below please find the official an-Europe Investment Logic (64.9%), Metro (Xet) (40.5%), Charles nouncement. For China investing in Europe, Vogele (38.5%), Wincor Nixdorf (Xet) 30 January 2008 ASX announce-the strategy might be “selectively in- (27.9%), Deutsche Telecom (Xet) mentvesting in Europe’s productivity to help (36.9%), Bwin Intact. Entm (32.0%), MONARO SIGNS MoUprotect Europe’s competitiveness”. Two Tui Travel (27.1%), Thomas Cook W ITH SINOSTEEL FOR THEtypes of European companies can be of Group (30.0%). STRATEGIC ASSESSMENT ANDparticular interest: DEVELOPMENT OF KYRGYZ (i) European companies with sig- URANIUM PROJECTSnificant BRIC revenue. Asia (ii) European companies with Asia Investment Background Highlightssignificant German revenue. Asia at the end of 2010 has rela- • Agreement with Sinosteel Cor- tively strong space-time boundary condi- poration to assess and develop KyrgyzEurope Investment Targets tions. Leadership changes for China and uranium projects. Applying the above investment America by 2012 call for policy initiation • On individual licenses Sinosteellogic, we have: and continuation 2011-2012, Asian coun- can earn: (i) European companies with tries between China and America will be 40% interest in selected projectssignificant BRIC revenue, including influenced accordingly. America has ties by conducting exploration and scopingPirelli (40%), Grupo Santander (42%), over China’s three corners of Northeast studies; and 60% interest in selectedHSBC (46%), Standard Chartered (Japan, South Korea), India, and Singa- projects by completing feasibility studies.(71%), Anglo American Plc (42%), pore, granting Singapore a strategic role. • Sinosteel may be issued share-BHP Billiton Plc (45%), Kazakhmys By investing in China’s financial industry, price options of up to 1.9 million shares(40%), Holcim (53%), Marie Tec- increasing linkage between Singaporean in Monaro, exercisable atAU$1.00nimont (68%), Wienberger (55%), and Australian stock exchange, discuss- each.Danone (40%), Uniever (43%), ABB ing FTA with Taiwan, Singapore is in aLtd (42%), Intertek Group (42%), good position advising America in Asia To contact Dr. Alyce SU, pleaseMTU Aero Engines (40%), Outotec by helping America managing its Asian email alyce.su@chinaqueencapital.(55%), Rolls-Royce (48%), Sulzer exposure. com, or call +(852) 6187 3268. 69