George Chen

By George Chen
The opinions expressed are the author’s own.

I am hearing more complaints these days from trader friends about how boring the market is these days. Why boring?

Trading volume is low and there are apparently more risks than opportunities as investors seek clear signals about the central bank’s monetary policy direction and about what global funds think of China for the second half of the year.

With investors uncertain about the outlook for the Shanghai and Hong Kong stock markets, some are beginning to rethink their positions on Japan. Concerns about radiation are easing and I hear more people talking about the big potential for Japan’s market and economy to rebound amid massive reconstruction there. An old and new question then arises: can we bet on the Nikkei, again?

Australia also looks like a good bet to some rich Chinese investors. They say the property market alongside the long beaches in Australia offers profit-taking opportunities over the next few years.

Remember my recent column about many rich Chinese trying to emigrate in the next few years? Australia is always a popular destination. A number of local media reports also indicated some family members of top Chinese leaders already bought nice villas in the resource-rich country whose diplomatic relations with China have been up and down in recent years.

In China, an influential fund manager friend told me privately: “The property market in China is basically done this year and next year before Premier Wen Jiabao retires and we get a new government.” But he quickly added: “Premier Wen must do something to keep his promise to keep property prices under control, and he’s done almost all he can. The next government will be a different story.”

So, until we see clear signs of how much further China’s property market can go, some investors are naturally starting to shift their focus. Japan? Australia? What’s your say? I think the same logic can apply to China’s stock market amid record high banks’ reserve requirement ratio, now already 21 percent for most banks, and the country’s benchmark interest rate that Beijing keeps raising so far this year.

The fast-changing market sentiment about investors shifting focus in Asia may be a bad sign or even a sort of warning to the Chinese government, which is keen to fight asset bubbles but also doesn’t want to see huge foreign money outflows and a lack of confidence in its capital markets.

The Shanghai exchange remains keen to launch an international board to welcome HSBC “home”. If the main board of its local currency yuan-denominated A-shares sinks, how can you convince investors of the value of the new international board?

Li Daokui, an influential adviser to the People’s Bank of China, said yesterday that the valuation levels of most A-share companies were pretty low and he saw investment opportunities. To some investors, this is almost government propaganda to encourage buying.

However, he also warned that Beijing needs to raise interest rates further to rein in inflation and that’s not really good news for stock investors.

Remember what Warren Buffett said? Choose right and sit tight. However, Mr. Buffett may also be feeling a bit lost about his Chinese investment portfolio these days. Oh yes, that’s just another China story …

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A woman carrying an umbrella walks past an office building that includes a China Telecom office and a branch of the Industrial and Commercial Bank of China in central Beijing August 25, 2010 REUTERS/David Gray

By George Chen
The opinions expressed are the author’s own.

Today is April Fools’ Day, a rare opportunity to make fun of friends and colleagues with pranks and practical jokes. Ever ahead of the game, Goldman Sachs produced an amusing mistake yesterday making it look more than a little foolish, as many investors and rival bankers may attest.

The bank’s Asia structured products unit said yesterday that trading in four index warrants it issued in relation to the Nikkei 225 was abruptly suspended in Hong Kong because of errors in supplemental listing documents. The formula of “cash settlement amount per board lot” for the warrants was misstated, Goldman Sachs Structured Products (Asia) Ltd said in a filing with the Hong Kong stock exchange. Click here to read the Goldman Sachs statement (PDF).

Before being suspended, the warrants surged by between 130 and 1,077 percent on Thursday morning, which local media reported could cost the bank millions of dollars.

Well, I understand it’s still a small figure to a bank like Goldman Sachs, although the story was certainly the most widely talked about matter in the equities world yesterday. Traders said this was a rare mistake that once again raised concern about the understanding of banks in relation to sophisticated financial products.

I am a bit worried about the fate of the Goldman Sachs bankers responsible for those Nikkei warrant errors. Should they be fired? Perhaps. It’s indeed embarrassing for Goldman Sachs and the timing is perfect — a day before the Fools’ Day — although this, sadly, was not a joke.

Or am I worrying excessively? The financial crisis is apparently over and there are good days ahead for investment banking professionals — at least those who work on China matters. Swiss bank UBS, the Asia-Pacific leader in equity underwriting, plans to double its China headcount over three to four years as it expands stock research coverage to small and medium-sized companies in China, the bank’s co-chief executive for the region said on Thursday.

Chi-Won Yoon, co-chairman and co-chief executive of UBS in the region, said at a forum in Hong Kong yesterday that the next real growth area for UBS in China would be small to medium-sized companies. I think this makes a lot of sense.

After the huge IPOs from the likes of Agricultural Bank of China in Hong Kong, we may not see many $10 billion and $20 billion deals for a while. Bankers are now talking about how “small is beautiful”, making deals and fundraising more workable and affordable to investors. Private businesses in China already contribute far more than half of national GDP growth annually.

But let’s not rush. I’m happy to teach Goldman Sachs bankers an old Chinese saying: “More haste, less speed” (欲速则不达 yu su ze bu da), as I believe a lesson should be taken from yesterday’s foolish mistake. The news of UBS hiring more China researchers should make rivals nervous.

After all, the financial industry is still short of talent, especially China experts. So is the media industry. A banker friend once asked me, these days if you know China, you speak Chinese and you have good communications skills, why not be a banker rather than a journalist and earn more money?

Good question.

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: Goldman Sachs Chairman and CEO Lloyd Blankfein testifies before the Senate Homeland Security and Governmental Affairs Investigations Subcommittee hearing on “Wall Street and the Financial Crisis: The Role of Investment Banks” on Capitol Hill in Washington April 27, 2010. REUTERS/Jason Reed

By George Chen
The opinions expressed are the author’s own.

Have you had breakfast or lunch yet? In Hong Kong, I’m guessing few people are choosing sushi these days.

Many restaurants in Hong Kong, even Japanese restaurants, have been quick to distance themselves from the crisis in Japan since the earthquake as concerns about food safety are growing in many Asia-Pacific cities, including Beijing, Seoul and Sydney.

The Japanese authorities announced this week that they would widen a ban on exports of a wide range of food products from areas surrounding the earthquake-hit Fukushima Daiichi nuclear power station. In fact, even before the official ban, the health authorities in China, Hong Kong and South Korea were already monitoring all such imports from Japan.

I’ve seen a number of sell-side analysts recommend Chinese food and beverage stocks, including some fisheries, which are now expected to benefit from the Japan crisis as people turn to locally produced seafood. Australian and New Zealand seafood companies should also benefit. It sounds like a perfect time for banks such as ANZ to expand, helping Australian and New Zealand farmers and fisheries extend their reach beyond their domestic markets, turning a crisis into an opportunity.

Some Chinese brokerages called such stocks “post-earthquake concept stocks”. Have you read the story about how Chinese truck maker Sany sent to Japan their innovative truck that can shoot wet concrete several meters into the air? Sany is likely to be a typical post-earthquake star pick, as are construction companies in Japan.

It’s not a fun idea but it does make sense. After all, investors can’t just sit in front of television screens feeling sad but doing nothing. What’s your say about the post-earthquake era in Japan from the economic perspective?

George Chen is a Reuters editor and columnist based in Hong Kong.

By George Chen
The opinions expressed are the author’s own.

While the rest of the world is trying to help Japan deal with the aftermath of its earthquake and tsunami, some parents in China and Hong Kong are on a single-minded quest to buy up as much made-in-Japan baby formula as they can.

On my way to work on Monday morning, I saw a long queue of anxious-looking people in front of a grocery store. Over the following three days, the queue got longer and longer and more and more anxious.

They were all after the same thing – baby formula from Japan. This is simply because some Chinese parents believe their babies are accustomed to drinking Japanese milk and they are concerned that radiation may affect the quality of exports from Japan in the coming months.

Hong Kong media reported that retail prices for some Japanese baby formula have risen more than 30 percent this week. At present, the market price is about HK$250 (US$32) for a standard container (200g / 7oz) and some retailers are reportedly limiting purchases to six per person to avoid angering latecomers.

In this case, parents called on relatives, even elderly grandparents, to join the queue on their behalf (which works if you have many relatives and friends who are willing to help). Of course, Hong Kong parents are not alone in this concern. A fast-growing number of parents in mainland China are on a similar quest and they don’t mind paying HK$2,000 (US$256) for a round-trip ticket from major mainland cities to Hong Kong to buy made-in-Japan products.

Meanwhile, people in Hong Kong, may have to face an even bigger disappointment soon as a result of Japan’s earthquake – the possibility of property prices rising even further and faster.

Local property agents say they have noticed some landlords want to increase rents, especially in downtown areas such as Admiralty and the Mid-levels, which are within minutes of Hong Kong’s Central financial and business district, where many international banks have their regional headquarters.

Global financial firms including Blackstone, BNP Paribas and Royal Bank of Scotland are relocating foreign staff, especially senior executives, from Tokyo to neighboring bases to avoid the possibility of radiation exposure. These executives are typically asked to head to Singapore, Hong Kong and Beijing, with most apparently happier to choose Hong Kong, if not Singapore.

Rents in Hong Kong are already make the city one of the most expensive places in the world in which to live. The government has been trying to cool prices since late last year. With more rich but timorous bankers being relocating to Hong Kong from Tokyo and so far no indication of when they might return to Japan, the outlook for the property market in Hong Kong looks bullish.

I’m not saying this isn’t a positive  trend, but given what is happening to the lives of ordinary people in Hong Kong and China, the crisis in Japan is becoming a crisis for Asia, if not the rest of the world.

If the nuclear crisis cannot be contained and people lose confidence in crisis management and post-crisis protection, a chain reaction may be seen in many areas beyond dairy and property prices.

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: Policemen maintain order as customers wait outside a store called “Japanese Milk Powder” before it opens in Hong Kong March 16, 2011. REUTERS/Bobby Yip

By George Chen
The opinions expressed are the author’s own.

You might consider yourself very smart, powerful or perhaps wealthy, but after watching live coverage on TV of the devastating earthquake and tsunami in Japan on Friday afternoon, what was your reaction? We’re all nobodies in the face of the forces of nature.

On Friday afternoon before the earthquake, the benchmark Shanghai Composite Index showed unexpected signs of recovery but the rebound was unfortunately short-lived. Immediately following the news alert about Japan’s worst earthquake in decades, stock markets from Hong Kong to Shanghai all retreated quickly.

This was a very natural reaction to such a massive natural disaster. Almost the same reaction was seen after the earthquake in China’s Sichuan province in May 2008. When investors feel uncertain and then the market sentiment becomes anxious, they sell. Fair enough – who really is in the mood to trade after seeing such a horrible event?

But think twice.

The phrase 危机 (wei ji) in Chinese for “crisis” is comprised of 危, danger and 机, opportunity. If you think you are smart, powerful or rich, is it time for you to turn the danger into an opportunity? It doesn’t simply mean you should immediately buy stocks to help the markets recover, so people may feel better and more hopeful about the economic outlook for Asia, but you need a plan to figure out what to do next.

So, what’s next? There won’t be any earthquake-like shock for Asia’s capital markets, I say.

Takuji Okubo, Chief Japan Economist for French bank Societe Generale, said in a research note to clients that the Japan earthquake would have a negative impact on regional equities markets over the short term but in the long run, it may help Japan’s economy grow, given the government’s big efforts to rebuild infrastructure, homes and so on.

What does that mean to China? Can Chinese materials and construction companies help? Because of growing concern about nuclear radiation, food safety is becoming another big challenge for Japan, especially to exports and this may be another angle worth studying about what a role China can play in and after the crisis.

We won’t be always in danger so your opportunity should come in next.

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A man steps over a crack in the road as he walks towards the devastated area of Rikuzentakata, northern Japan after the magnitude 8.9 earthquake and tsunami struck the area, March 13, 2011. REUTERS/Lee Jae-Won

By George Chen
The opinions expressed are the author’s own.

If Apple calls its tablet computer the iPad, what will China’s Lenovo name its new rival product? The answer: LePad. No kidding.

Lenovo CFO Wong Wai Ming said during an interview at Reuters offices in Beijing on December 13, when attending this week’s China Investment Summit, that the world’s No.4 PC maker would launch its LePad tablet computer in China within the next few weeks and was also planning a smartphone to run on China Mobile’s TD-SCDMA 3G network as it moves beyond its traditional PC base.

I’m not trying to give a free advertisement for Lenovo’s LePad in my column today. The reason I raise the matter is mainly to draw your attention to how fast Chinese companies can react to new international consumer trends and the quick success of new products such as Apple’s iPad. In less than half a year, ZTE Corp launched a tablet PC in October that sold for a far lower price than the iPad, even though it looks very much the same.

Many analysts have identified consumer-driven telecommunications, media and technology sectors as hot themes for stock market investment next year as Chinese consumers, in particular the young generation, become increasingly keen to shop and spend.

And that’s exactly what the Chinese government wants – to transform its economic structure and make it less reliant on exports and more on domestic consumption.

In fact, Chinese consumption has grown by more than 9 percent per year, after adjustments for inflation, over the past decade. Chinese consumers are also becoming more sensitive to global trends and brands, often adopting new products such as the iPad as symbols of the new rich class.

China overtook the United States as the world’s leading automobile market in 2009. The real-estate market is also on fire, swelling demand for appliances and furniture. China is No. 2 in sales of luxury goods. Find more interesting facts about the growing buying power of Chinese consumers in my colleague Alan Wheatley’s special report “The Chinese consumer awakens”.

Recent successful listings by Chinese Internet companies in the United States, for example Youku.com, have convinced more investors of their confidence in the young generation of Chinese consumers. Even the parent company of Renren.com is soon likely to become one of the biggest and probably most popular Chinese Internet IPOs in recent years.

From the name Youku.com, I’m sure you can guess it aims to copy the success of Google’s YouTube.com. In Chinese, the word “ren” means people. Renren.com is China’s No.1 social-networking site at present and known as a Facebook.com copycat. If you do some research of your own, you can certainly find more stories like that in China.

Remember  the stories about how the Japanese copied the successes of American industries from TVs to sedans in the 1960s and 70s? Eventually, by the late 1980s, the Japanese were able to change people’s perceptions. Consumers saw Japan as an innovator rather than a copier, and domestic automakers such as Toyota started really beating old American legends like Chrysler and Ford.

Can success be really copied so easily and rapidly today?

From the iPad to LePad in a matter of eight months, will LePad be as successful as the iPad or the ThinkPad, the laptop business that Lenovo acquired from IBM in a landmark deal in 2005? Chinese consumers hold the key to that answer.

But for Lenovo’s top boss Liu Chuanzhi, I do have a more challenging question to measure the real success of his company: Mr. Liu, Have you thought about someday creating something that will compel Apple’s Steve Jobs to quickly take notice and try to reproduce? That will be the key to China’s success, not just one company for the next few decades!

(Also read George’s column “What the iPad means for China” on Reuters.com)

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A salesman opens the door of a Lenovo store at the Zhongguancun computer marketplace in Beijing August 19, 2010. REUTERS/Jason Lee