Dr. Alyce SU on China's Global Investment Strategy

1. 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.
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2. 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:Colgate
know, 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: PSU
stake 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 Development
Russia 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: Hindalco
India Investment Background entertainment 39% CAGR. Advertis- Industries. Hindustan Zinc.
India’s f ledgling logistic system ing CAGR 15%. (x) Media: Dish TV India. Sun
forced 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 Authority
Today, 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 Development
priced 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. JSW
tion high growth goods include coffee, (xvii) Utilities: Power generators Energy. LancoInfratech.
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3. 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
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4. 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: natural
consider 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 China
and remodeling museums for tourism. (79.0 %), Prosieben Sat 1 Med ia Queen Capital (HK) Ltd, helping an
Besides 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) selling
consumers may also be considered Group (30.7%), Gagfah (100%), Fiel- its Kyrgyz Uranium asset to China’s
relatively 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) ment
vesting in Europe’s productivity to help (36.9%), Bwin Intact. Entm (32.0%), MONARO SIGNS MoU
protect Europe’s competitiveness”. Two Tui Travel (27.1%), Thomas Cook W ITH SINOSTEEL FOR THE
types of European companies can be of Group (30.0%). STRATEGIC ASSESSMENT AND
particular interest: DEVELOPMENT OF KYRGYZ
(i) European companies with sig- URANIUM PROJECTS
nificant BRIC revenue. Asia
(ii) European companies with Asia Investment Background Highlights
significant 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 Kyrgyz
Europe Investment Targets tions. Leadership changes for China and uranium projects.
Applying the above investment America by 2012 call for policy initiation • On individual licenses Sinosteel
logic, 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 projects
significant BRIC revenue, including influenced accordingly. America has ties by conducting exploration and scoping
Pirelli (40%), Grupo Santander (42%), over China’s three corners of Northeast studies; and 60% interest in selected
HSBC (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$1.00
nimont (68%), Wienberger (55%), and Australian stock exchange, discuss- each.
Danone (40%), Uniever (43%), ABB ing FTA with Taiwan, Singapore is in a
Ltd (42%), Intertek Group (42%), good position advising America in Asia To contact Dr. Alyce SU, please
MTU 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.
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