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Musk challengers turn into billionaires as China battery giant soars

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From Bloomberg:

The Chinese founder of the world’s biggest maker of electric-vehicle batteries and his top lieutenant became billionaires Monday after their company’s shares soared during the first day of trading in Shenzhen.

Contemporary Amperex Technology jumped by the maximum 44 percent allowed by the exchange, valuing the company at about $12.3 billion. That cemented the position of Zeng Yuqun, CATL’s founder and top shareholder, on China’s rich list with an estimated net worth of about $3.4 billion, according to the Bloomberg Billionaires Index.

Investors are confident that CATL can fend off rivals Panasonic, which makes power packs with Tesla; Warren Buffett-backed BYD Co.; and LG Chem, as the increasing popularity of EVs boosts demand for the batteries that move them. CATL, whose customers include Volkswagen AG, previously cut the size of its IPO by more than half, compared with its original ambitions, because of declining margins and a cap imposed by Chinese authorities on price-earnings ratios in IPOs.

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The IPO made CATL the biggest company on China’s Nasdaq-style ChiNext list. Zeng, a 50-year-old engineer who started CATL seven years ago, owns a 26% stake. Vice Chairman Huang Shilin holds 12% and has an estimated net worth of $1.7 billion.

Continue reading at Bloomberg…


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Is the world’s biggest real estate market about to collapse?

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From Brian Tycangco, Editor, Stansberry Churchouse Reseach:

The world’s biggest real estate market is slowing down. And it’s not because of failing subprime mortgages or an economic crisis.

China’s property market – worth seven times that of the U.S., based on total value of new homes sold – is weakening… again.

China’s new home sales hit US$1.69 trillion last year, as an estimated 22 million Chinese moved from rural areas into cities (that’s like the entire populations of the U.S. states of Kentucky, Louisiana, Alabama, South Carolina and Kansas moving to the city).

A total of 1.44 billion square meters of apartments and condominiums were sold – the equivalent of 5.76 million new homes, assuming the size of an average American suburban house (last year, 614,000 new homes were sold in the U.S.).

But a couple of years of breakneck growth has caused the average price of developed property (i.e., condominiums and residential apartments) in China to jump 18% since July 2015. In the biggest cities of Beijing, Shenzhen and Shanghai, prices increased more than 50%.

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Adding fuel to soaring real estate prices are Chinese investors speculating for short-term gain, considering property prices in most cities are rising at least twice as fast as the 5.5% average mortgage rate.

Buyers now need to show a pile of cash up front

To curb speculation, the government started raising the requirements to purchase property in March 2017. It increased the minimum down payment on second home purchases in second- and third-tier cities from 20% to 30%.

That compares to a typical second-home buyer in the U.S., who is required to put up between 10% and 20% as down payment.

What’s more, the Chinese government also ordered state-owned banks to raise the minimum down payment for privately-developed residential projects in first-tier cities from 70% to 80%. That essentially locked out all smaller buyers in many cities, including Shanghai, Shenzhen and Beijing.

The next stage of tightening happened in September 2017, when local governments in a number of cities, including Shenzhen, banned investors from selling newly purchased homes for up to five years. Other local governments barred investors from buying a second home for up to three years.

So after growing by 16.1% in the first half of 2017, home sales growth in China slowed to just 3.3% in the first half of 2018.

The Chinese government’s year-long crusade to deflate the property market finally filtered through to developers’ sales. As a result, the shares of listed Chinese real estate developers have fallen.

The MSCI China Real Estate Index, which captures the performance of large and mid-cap segments of the China real estate market declined by 14% between May 1 and July 31. That compares with a 5.8% decline in the MSCI China Index and a 2.7% gain in the MSCI All Country World Index.

But is this a precursor to a Chinese real estate market collapse? History shows us that it’s likely not. We’ve seen this same knee-jerk reaction in Chinese real estate company stock prices in the face of Beijing’s previous efforts to deflate the hot property market.

China’s history can be a road map to profits

In September 2010, for instance, Beijing enacted measures to curb speculation in real estate after prices jumped 32% in just two years (2008 to 2010) to 4,725 yuan per square meter.

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That eventually led to a 30% decline in the MSCI China Real Estate Index by the following year, as curbs filtered through to developers’ bottom lines.

(That also opened up a terrific buying opportunity in shares of Country Garden Holdings (Exchange: New York; ticker: CTRYF; Exchange: Hong Kong; ticker: 2007), one of China’s biggest and most established real estate developers, which I recommended to my readers in February 2011. It went on to nearly double their money (95%), as government curbs were eventually lifted and eager buyers returned to the market.)

Then, in March 2013, after average property prices rose 17% to 5,850 yuan per square meter in a just a couple of years, Beijing stepped in again, slapping a 20% tax on selling a home (vs. existing 1% to 3% capital gains taxes). Beijing also increased the required minimum down payment from 60% to 70% for second homes.

That resulted in a 20% correction in the MSCI China Real Estate Index over the next 12 months, and caused total property sales to fall nearly 3% between 2013 and 2015.

(The lull in the market presented an opportunity in our Strategic Wealth Confidential newsletter to recommend shares in one of the country’s best-run real estate investment trusts (REITs). REITs are companies that hold a portfolio of income-generating property and distribute nearly all their profits to shareholders as dividends. This one in particular was paying out an 8.5% yield.)

With average real estate prices in China again up 18% in just the last couple of years, Beijing’s recent determined moves to rein in the property market shouldn’t come as a surprise. We actually welcome it.

Will the Chinese real estate selloff continue?

For the short-term, the outlook is going to be weak. The government has not given any indication that it’s willing to ease restrictions on new home purchases, and will likely add more restrictions in the coming weeks and months.

But I’ve been covering the Chinese real estate market since 2003, and the volatility we’re seeing today is nothing new.

With 600 million Chinese (40% of the country’s population) still living in rural areas, and 22 million of them moving into cities each year, the property market in China is still far from reaching a point of peak demand.

Down the road, I expect there will be a slew of profitable, well-managed and under-leveraged Chinese property developers that will once again offer up enticing value.

Good investing,

Brian

P.S. Even as China’s property market is letting off some steam, other sectors of its economy are expanding at a breakneck pace. One of these sectors is water treatment, which is growing non-stop thanks to the government’s efforts to clean up the country’s heavily-polluted rivers and lakes. It’s opening up a rare opportunity for 793% gains on a leading water treatment specialist. To find out more about this company – and two others with similar potential – go here.


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Cramer’s charts suggest it’s still worth investing in bonds

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U.S. Treasury bond yields have been on a tear this year, and with the Federal Reserve on track to continue raising short-term interest rates, it looks like the trend will continue. But when bond yields rise, prices fall, which has investors worried. “The conventional wisdom on both Wall Street and Main Street is that U.S. Treasuries are one of the worst possible asset classes to own right now,” said CNBC’s Jim Cramer.

However, Cramer thinks that investors shouldn’t be too quick to follow the crowd. The “Mad Money” host enlisted the help of technician Carley Garner, co-founder of DeCarley Trading and author of “Higher Probability Commodity Trading,” to reassess the state of the bond market. Garner believes that “the bears in the Treasury complex have gotten overconfident,” said Cramer.

Taking a look at the weekly chart of the 10-year U.S. Treasury futures, Garner’s analysis shows that large speculators, who are professional money managers, are betting against Treasury prices at never-before-seen levels.

“Not only are they holding net short positions in these 10-year Treasury futures, but they’re more bearish than they’ve ever been at any other time in living memory,” Cramer said. Together, large and small speculators are holding a net short position of 800,000 10-year Treasury futures contracts.

Garner “thinks this trade has gotten overcrowded,” Cramer said. She believes that prices are poised to rise once all of these short sellers buy back Treasury bonds to close their positions.

Looking at the seasonal price patterns of the 10-year Treasury bond, the charts show that prices tend to rise in the second half of the year. This trend is particularly reliable according to Garner’s analysis, with the biggest rally occurring from July through early October.

“Garner thinks the rally could be particularly pronounced this year given that Treasury prices are pretty depressed,” the “Mad Money” host said.

Cramer’s bottom line? The markets aren’t always what they seem. “Don’t just assume that our long-term interest rates are destined to head lower immediately,” he said. “The charts suggest that U.S. Treasury prices could actually have some upside here.”



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The pool of publicly traded stocks is shrinking. Here’s what investors can do

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From Frank Holmes at Frank Talk:

Elon Musk is no stranger to making controversial and outlandish comments, and his tweet last week is no exception. As you probably know by now, the perennial entrepreneur announced to his more than 22 million Twitter followers that he is “considering taking Tesla private at $420.”

Despite the Herculean challenge—such a move would be the largest leveraged buyout in history—and despite Musk’s history of being a provocateur, Wall Street seemed to take his comment seriously. Tesla stock rose close to 11% last Tuesday to end at $379, a few bucks shy of its all-time high of $385, set in September 2017.

There are many reasons why investors should take note. For one, Musk and Tesla are now likely to face heightened scrutiny from securities regulators.

My reason for bringing it up is that, should Musk follow through and take the electric carmaker private, the already shrinking universe of investable U.S. stocks will lose yet another name.

This is a trend that cannot continue indefinitely.

As I wrote in May 2017, the number of publicly listed companies in the U.S. has fallen steadily since 1997. More companies have delisted, in fact, than gone public in every year of the past 20 years except one, 2013.

Put another way, the pool is getting smaller even while the population and economy are expanding.

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The U.S. Has 5,000 Fewer Listed Companies Than It Should

In 1976, there were about 23 listed companies per 1 million U.S. citizens. Today, it’s closer to 11 per million.

That’s according to a new National Bureau of Economic Research (NBER) report by respected financial economist René Stulz, who adds that the U.S. has roughly 5,000 fewer companies listed on exchanges than you would normally expect, given the country’s size, population, economic and financial development and respect for shareholder rights.

Are we seeing the same phenomenon in other countries, developed or otherwise?

“There are other countries that have lost listings since 1997, but few have experienced a greater percentage decrease in listings,” Stulz writes. “Further, the U.S. is in bad company in terms of the percentage decrease in listings—just ahead of Venezuela.”

Given that Venezuela’s economy is in freefall, with inflation forecast to hit 1 million percent this year, I would call it bad company indeed.

So why is this happening?

Continue reading at Frank Talk…


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