China Money Podcast – Audio Episodes

In this edition of China Money Podcast, Tian X. Hou, founder and CEO of T.H. Capital, shares her thoughts on why Qihoo's stock is just starting a major bull run, why Sina is undervalued and what Baidu should do to advance forward in a mobile world. Listen to the full interview in the audio podcast, watch an abbreviated video version or read an excerpt below. Q: How will China's economic slowdown impact Chinese overseas listed Internet stocks? A: Not that much. The Chinese Internet companies raise money from private funds and public markets. They spend their money buying advertising and traffic online. So the Internet becomes a self-feeding economy. China's credit crunch and liquidity issues have little to do with Chinese Internet companies. Q: In May, Qihoo 360's stocks were trading just above $40, and you had a buy rating with a price target of $52. Today, the stock is trading around $51. Where do you think it will go next? A: Currently, we are using 2014 earning projections. I think if we use forecast numbers further out, we could see the stock trading between $67 and $87 at the end of next year. Qihoo's strength comes from several places. One is its monopoly in PC security software, or its anti-virus software. It's literally used on every single PC in China. When users install the software, they are asked to use Qihoo's browser and set up a Qihoo personal page. This set-up enables Qihoo to gain search market share in a second. Qihoo launched search service last August. Over night, it gained 8% market share. Today, it has 16% of the search market. Another strength is Qihoo's web game hosting business. Because they have a lot of traffic, they are able to sell traffic to web game owners or developers. Even though each web game may be small, but the aggregate of all the games is huge. As the host, Qihoo is growing this business very rapidly. Lastly, Qihoo's Android app store is number one in China with 110,000 apps and billions of downloads. Just two months ago, it was number two. Qihoo can do two things with this platform. It distributes enterprises' mobile apps. Everybody needs a channel to distribute their apps. Qihoo plays that role and charge money. Qihoo also operates a mobile game hosting service. It's similar to web game hosting service but on mobile. There is great revenue potential in this business as well. So Qihoo's potential growth is just starting and the company is in a fast-moving upward trend. Q: What are some major risks you see with the company? A: The company could raise more money in a secondary offering, or they could buy other companies. These could cause the stock to set back temporarily. Also, the strong personality of Qihoo's CEO Zhou Hongyi could potentially create issues for the company. Q: For Sina, you've had a price target of $89 for some time, but the stock seems to suffer from a lack of direction. It's currently around $55. Are you still holding on to your projection? A: Very much. All the Chinese stocks that we recommended "buy" have enjoyed a good run. Sina is the only exception. Sina's Weibo is more than social media. It has a very authentic user base. Sina somehow thought it could monetize Weibo quickly so monetization schedule got pushed back several times. Some investors therefore doubt whether Sina can monetize Weibo. Weibo's traffic, including mobile, is 1 billion times a day. That compares with 800 million for Baidu and 400 million for Alibaba's Taobao. But if you look at advertisers, Baidu has about 400,000, Alibaba has almost 800,000 vendors. Weibo's advertisers are negligible. If we look at Weibo's recent strategic alliance with Alibaba, the potential value creation is being under-estimated. What you see now, display of Taobao vendors on Weibo, is just regular traffic direction. There will be another potential revenue source coming from a specially designed product that is likely to be launched in August.

In this edition of China Money Podcast, senior equity analyst at Sanford C. Bernstein, Michael Werner, returns to discuss the recent interbank market liquidity squeeze in China, which Chinese banking shares he likes and what he sees as the biggest risk in the Chinese banking sector. Listen to the full interview in the audio podcast, or read an excerpt below. Q: Short-term interbank lending rates in China spiked last week. On Monday, the Chinese central bank made it clear that it won't yield to market pressure and loosen up monetary policy. What's your expectation on how interbank market conditions will develop next? A: I think the market conditions will loosen up a bit at the beginning of the next quarter in July. One of the pressures on the interbank market is the typical quarter-end "window dressing." We've also seen a sharp decline in foreign exchange inflows. In terms of total exposure, the large banks have 7% to 8% of their balance sheet exposed to interbank assets. For the smaller banks, that number is 25%, which used to be 9% three or four years ago. In the past, we've seen the central bank adding liquidity when these rates go up. But this time, the central bank is taking a spectator's vantage point. So I expect these rates to remain high through the end of the quarter. Q: Do you think the central bank will be successful trying to instill market discipline? A: This is part of the new leadership's intention to reform some of unsustainable practices in the banking sector. I think it's going to reduce the amount of "window dressing" and leverage in the interbank market. Luckily, there are fewer linkages between the interbank market and the real economy in China than in the U.S. or Europe. Q: For the banks you cover, what has been the impact from this liquidity squeeze? And what are the biggest downside risks if conditions get worse? A: The banks that are going to face the greatest headwinds from the liquidity squeeze are the ones who fund themselves on the short end on the interbank curve and invest in longer-term assets. A lot of the A-share listed banks, some smaller joint-stock banks and small city commercial banks are "playing the yield curve" by borrowing short and lending long. They are going to be impacted the most. Among the banks that we cover, there is still some concern. For example, 35% of Minsheng Bank's assets are interbank exposures. They are one of the most aggressive banks in growing these interbank exposures. They will be negatively hit. In a bad case scenario, banks have to sell certain assets off their balance sheet if they are not able to roll over their short-term funding. We have seen signs of fixed income assets' prices coming down over the past two to three weeks, that's likely because banks are forced to de-leverage. In the worst-case scenario, you end up with interbank defaults. There have been media reports that it has occurred. I'd be very surprised if the central bank would allow it to go that far. Q: Chinese banking shares have been hammered, but you haven't changed your rating? A: That's correct. I don't think we will see these banks' (stock prices) recover. They will be under pressure as long as SHIBOR remains at these elevated levels. One thing we have noticed is that the cost of equity for the banks has gone up sharply, especially for the smaller banks. Even though valuations have come down, the cost of equity has gone up, so it mitigates the need to change our ratings. Q: Now let's look at the fundamentals of the banks under your coverage universe. Which banks do you prefer right now? A: I prefer the large banks. We rate Industrial and Commercial Bank of China (ICBC), China Construction Bank and Bank of China outperform. On the other hand, I'm not a big fan of the smaller banks. We rate China Merchants Bank and Minsheng Bank underperform. The smaller banks have been underperforming the large banks.

In this episode of China Money Podcast, host Nina Xiang discusses the trend of U.S.-listed Chinese companies fleeing American exchanges. She shares the main findings of a report jointly produced by Houlihan Lokey and Mergermarket. Listen to the full audio podcast above, or read an excerpt below. china money podcast- Since 2003 to this year, approximately 150 Chinese companies completed IPOs in the U.S., with values reaching more than $17 billion. There were many more Chinese companies that entered the US markets through reverse mergers. - From 2010 to this year, there have been a total of 20 take-private deals that have been completed. There are 19 deals still on-going, and 7 cancelled deals. - IT and healthcare sectors were the most active industries, taking up more than half of the total number of deals and nearly 40% of deal value. Consumer and industrial come next. - The $3.7 billion privatization deal of Focus Media by its founder Jason Jiang and a group of PE funds led by The Carlyle Group is the largest leveraged buyout of a Chinese company ever. - The average time to complete a take-private deal is 8.5 months. The shortest transaction is the $6 million take-private of Tiens Biotech Group in 2011, which took just one month and a half to complete. The most time-consuming transaction was the $250 million privatization of in 2012 that took 26 months to close. - For buyer groups, they face various challenges in a privatization deal. The Securities and Exchange Commission requires a 13e-3 filing, which can contain greater disclosure than what was required when the company went public. - American exchanges have the authority to halt trading of a company's stocks if they think adequate financial statements or pertinent information is not provided. - U.S. state courts hold companies to high standards when insiders (such as company management) are involved in a transaction. Any potential investigations could turn into lawsuits and cost money to resolve. - In some recent deals, more activist shareholders are opposing a transaction or are pushing for a price increase. Competing bids from outsiders also threaten to derail a deal. - Whether any buyer group can successfully relist a taken-private company on exchanges in greater China remains the biggest question mark. There is no precedents of a successful relist for now. For the buyer groups, what they can do right now is to increase the company's value and strengthen its fundamentals.

In this edition of China Money Podcast, guest Bruno Raschle, chairman of global fund of funds Adveq, talks with our host, Nina Xiang. He discusses Adveq's investment activities and performance in China, how to pick fund managers to back, and his views ...

In this special edition of China Money Podcast, listen to former chairman and CEO of AIG, Hank Greenberg, discuss how the U.S. and China should jointly manage the Asia Pacific region, the transition of China's economic model, and China Development Bank's failed investment in San Fransisco. Hank Greenberg answered questions from former Morgan Stanley chief economist Stephen Roach at a luncheon event organized by the China Institute. Listen to the audio podcast, or read an excerpt below. Q: Is China's new leadership up to the job managing China's reforms and economic model transitioning? A: I think they are. The process they go through in China to decide who becomes the next new leaders is generally very balanced. The U.S.-China relationship is the most important in the world, but it's also the most troubled in the world. Until the two countries learn to trust each other, we have a problem. The U.S. is a Pacific power and an Asian power. So is China. Both countries have to learn to live in that part of the world together, and not say, I dominate or you dominate it. We have to learn to manage that area jointly. I'm sorry that Xi Jinping made his first foreign visit to Moscow, but not to the U.S. (or to meet U.S. leaders somewhere midway). Q: It seems to me that Washington continues to look at the old China as a threat, instead of looking at the new China as an opportunity. Is that the heart of the trust issue that you alluded to? A: It is part of it, but the problem goes beyond that. The excursion of China to the South China Sea has heightened that tension a bit. Every nation has a right to build a military force for self-defense. Put yourself in China's position – it's surrounded not by the friendliest countries. Vietnam is not China's friend. Japan is not. China has border problems with India. South Korea is now an issue because of North Korea. I think the issue of the South China Sea is not who owns the reefs, but who owns the oil and gas beneath the reefs. There must be a better way to give that up than muscling your way into it. It doesn't create the right atmosphere for building relationships. Q: How does China transition to a consumer-driven economy? A: China has to build a consumer market. But change in China won't happen abruptly. It's a 5,000-year-old society. But China will become a consumer economy. They will take people off the farms and build many new cities. The question is how do you finance building these cities? How do you create jobs? It seems to me not that complicated. We issue 30-year bonds here in the U.S. I think one day, China will issue 30-year bonds (or 20-year, 50-year, doesn't matter). Those bonds will be attractive worldwide, not just in China. Once you build these cities and move people in, declare a tax holiday for 5 to 10 years to attract businesses and industries to these cities. These cities will then have competitive advantage not only for exports, but also domestically as they enjoy the tax benefits. Q: China Development is trying to make a sizable real estate investment in San Francisco, but it seems to be falling apart? A: I think it was politics on both sides. There were all sorts of issues, some are technical and some related to safety. But China Development Bank is loaning a lot of money in Africa, a continent where the U.S. is not doing much. But that continent is going through dramatic changes now (and the U.S. shouldn't be absent).

In this episode of China Money Podcast, co-founder of Amalfi Capital, Tristen Langley, talks with our host, Nina Xiang, on Alibaba Group's $586 million acquisition of an 18% stake of Sina's Weibo, her investment firm's winning and losing bets, and the ...

In this episode of China Money Podcast, guest Bluford Putnam, chief economist at the CME Group, talks with Nina Xiang about his forecast for when the Fed will stop asset-buying programs, raise interest rates, and their impact on China. He also explains why investors do not need to worry about inflation even after the biggest monetary expansion in history. Bluford Putnam talked with China Money Podcast on the sidelines of the Global AgInvesting Conference 2013 in New York City. Listen to the full-interview in the audio podcast, or read an excerpt below. Q: This past weekend, China's newly released March industrial profits showed slower growth of 5.3% year-on-year, compared to 17.2% during the first two months of the year. But this doesn't seem to concern you? A: No. The amazing thing about China's industry company profits is that they were so good last year. China had to deal with the European crisis and less exports to Europe. But profits at Chinese industrial companies held up rather well, and they are just slowing down now. But it's not a big concern. China's economic growth is on a "glide path" to a slower GDP growth of a more mature economy. So it's natural that its growth rate will slow down. I see that China's growth transitioning from an average of 10% a year for the past 30 years to an average of 6.75% for 2010s and down to 3.9% for 2020s. Q: Do you think investors are prepared for a slower-growing China? A: No. But I think the new leadership in China is very well aware of the need to focus on the quality, not the quantity of economic growth. They will move faster to deal with pollution, healthcare, and RMB normalization issues. Q: You talked about the difficulties facing emerging markets' central banks in a global zero interest rate environment. What's your expectation of the People's Bank of China's (PBOC) policy this year? A: I don't think any major countries will hike interest rates as long as the U.S., Europe and Japan have close to zero rates. For China, its growth rate is slowing down and inflation isn't a big problem, I don't see the PBOC raising interest rates (this year). Q: The global monetary conditions have a great impact on China. When do you see the U.S. Federal Reserve raising interest rates and stopping asset-buying programs? A: The Fed has adopted a massive government asset-buying program, purchasing $80 to $85 billion every month. We see that ending in early 2014 because the U.S. economy doesn't need it any more. With a 2% annual growth rate, the U.S. economy really isn't bad considering taxes have gone up and fiscal spending has been cut. The decision by the Fed to raise interest rates will probably be delayed to 2015 or 2016 when inflation becomes a concern. Inflation is not a worry now. Q: What will happen to the Fed's balance sheet when it raises interest rates? A: The Fed has accumulated over $2 trillion of treasury securities. If interest rates rise, the prices of treasuries will fall. Therefore, that $2 trillion will be worth less. Q: China has 36% of its $3.4 trillion foreign reserves in U.S. treasuries, which also face the risk of losses? A: Only when the U.S. economy is growing faster than 2% and when inflation starts to rise, will we see the treasury market with higher yields and lower prices. So anyone – not just China – holding treasuries will face the risk of losing money. But central banks usually don't sell these securities. They hold them to maturity. There won't be any paper losses. In fact, that's exactly what we think the Fed will do. Q: When these treasuries are paid many years later, how much are they worth is largely dependent on inflation. Why haven't we seen out-of-control inflation after this round of unprecedented money printing across the world? A: The most famous monetary economist, Milton Friedman, pointed out that the lag between monetary policy (and its consequences) is long and variable.

In this episode of China Money Podcast, guest Richard Herd, head of China research at the Organization for Economic Co-operation and Development (the OECD), talks with Nina Xiang about OECD's 2013 China Economic Survey. He explained why the OECD believes that China will overtake the U.S. as the largest economy in 2016, why the Chinese economy is already re-balancing away from heavy investment and why Beijing is likely to tighten further the Chinese property market later this year. Listen to the full-interview in the audio podcast, or read an excerpt below. Q: Just today, China announced that it's first quarter GDP grew 7.7%, down from 7.9% in the fourth quarter of last year, lower than market expectations. What's your take on this? A: First of all, it's a very surprising number. If you look at the quarter-on-quarter growth, it's only 1.6%, and that's about a 6.5% annualized rate, which would be the slowest growth rate since the crisis of 2008. If you look at the numbers in detail, we see that the main cause of the slow down has been a deceleration of investments. In this quarter, the contribution of investments (to growth) is only 2.3 percentage points, an extremely low number. It's difficult to reconcile this with the fixed asset investment data where both infrastructure and manufacturing sectors have seen a pick up. So a possible explanation could be that there has been a significant destocking process in the property sector. That means underlying demand could be stronger going forward, and we could see a rebound in the second quarter. Q: Today, we'll discuss in detail of an economic survey the OECD released last month on China's medium-term prospects. The one thing that caught the media's attention is the conclusion that China's economy will surpass the U.S. to become the largest in the world in 2016. How did you come up with this forecast? A: First, this projection is not based on standard U.S. dollars. It's based on purchasing power parity (PPP), taking into account the differences in price levels between China and the U.S. Based on estimates from the World Bank, you find that the difference in growth rate is five percentage points a year between the two countries. So over ten years, China will grow 60% faster than the other. If you use actual prices and market exchange rate, China's GDP will still become larger than the U.S. five years later in 2021 or 2022. Obviously, China has four times more people than the U.S., so even when the aggregate GDP is the same, GDP per capita will still only be a quarter of the U.S. In addition, the level of productivity and the ability to produce high tech designs and to innovate are still far behind of the U.S. Q: In the OECD report, it also states that the Chinese economy will gradually slow but high growth can be maintained for some time. Last week, China's president, Xi Jinping, said that the era of super growth in China has ended. What is a realistic expectation for China's medium term growth? A: Of course I agree that the era of double-digit growth over a number of years in China won't be repeated. We expect 8% to 8.5% a year for the next five years. Why we do think this growth can be maintained? The driver of economic growth has been in the non-agricultural sector. Productivity in this sector has been growing at 7.5% to 8% for the past ten years steadily. Then the scope of growth depends on how many people are moving from the countryside to the cities. With our estimate of 2% a year increase in non-agricultural labor force, that should keep growth at least one percentage point above the labor productivity. Q: In the OECD report, you recommend that monetary policy remain relatively accommodative in the near term but should guard against inflation risks in the future. In March, we've seen China's M2, a broad measure of monetary supply rose 15.7%, much higher than the government's target for this year of 13% and also higher than market expectations.

In this episode of China Money Podcast, our host Nina Xiang reviews the latest news from the week of March 25 to April 1, 2013. - China's official PMI (Purchasing Managers' Index) number rebounded significantly in March, consistent with the rebound shown in the HSBC PMI released earlier. The statistic further supports the view that China's economic recovery is gaining momentum. - Economists agree that 2013 will have a "tiger head, snake tail," meaning a strong first half and more headwind during the second half. Investors should stay cautious for more tightening measures from the government on the property sector (and potentially from China's Central Bank) during the second half of the year. - ANZ issues a report calling for a residential property bubble burst in Hong Kong. During the past 12 months, Hong Kong's economy expanded 1.4%, but residential property prices have increased 23%, surpassing the previous peak set in 1997. ANZ estimates that Hong Kong's actual residential property prices at the end of 2012 are 24% higher than its fair value, and are headed for a correction. - Historically, a widening gap between actual price and fair value (like it is right now) has preceded a significant price correction. For example, the fourth quarter of 1997, second quarter of 1998 and fourth quarter of 2008, all registered price declines of more than 16%. That provides some indication of the extent of the price correction. - Alliance Bernstein releases a report on China's listed banks performance from fourth quarter of 2012. Overall results beat market expectations by 1% on average, which Alliance Bernstein explains are made possible by the following factors: 1, net interest margins were up 2 basis points quarter over quarter, while the market expected a 5 to 10 basis point decline. 2, fee income grew 25% for the group, in particular in cards and custody businesses. But watch out: Alliance Bernstein predicts that net interest margins will compress 5 to 10 basis points in the fist quarter of this year. - Standard & Poors released a report on China's shadow banking sector last week. The U.S. rating agency estimates that China's shadow banking is as large as RMB23 trillion (US$3.7 trillion) at the end of 2012. That's equivalent to 34% of the total loans in the banking sector and represents 44% of China's GDP in 2012. This 44% ratio compares with 111% for G20 countries and the Euro-zone. - But after careful analyses, S&P doesn't believe that China's shadow banking has reached a point to destabilize China's financial system. It is because: 1, the size of China's shadow banking is relatively modest compared to the regular banking sector; 2, the risk profile of shadow banking products are not all rotten apples. Only a small portion may become bad; 3, the official banking sector is in a relatively healthy state when you consider capitalization, earnings and funding profiles.

In this episode of China Money Podcast, founder and CEO of Beijing-headquartered, $500 million-under-management HAO Capital, Simon Eckersley, talks with Nina Xiang on HAO Capital's investments in the healthcare and environmental protection sectors, the firm's plans for future fundraising, and some key methods it uses to help portfolio companies grow. Listen to the full-interview in the audio podcast, watch the shortened video version or read an excerpt below. Q: First, give us a brief introduction of HAO Capital? A: HAO Capital is a Beijing-based private equity firm. We take minority stakes in growth businesses in China, and focus on healthcare, consumer and light industrial (including clean tech) sectors. We started raising our first fund in 2005, and closed in 2007 with $100 million. We raised our second fund of $400 million from 2007 to 2008. We've done a number of co-investments worth around $50 million as well, so we currently manage over $500 million. Q: Going back in history, can you share with us your experience of raising your first fund back in 2005 and 2006? A: At the time, there was less competition in terms of the number of (China-focused) funds. But then, a lot of LPs (Limited Partners) were also not really focused on China, as it's still a fledgling private equity market. It's different today. Looking at our own LPs, they are invested in (many more) China funds compared to back then. Q: What is the average size of your investment, and how many active investments do you have now? A: On average, we look at investments in the $20 million to $50 million range. We currently have 14 active investments between the two funds. The first fund is almost fully paid back. We've exited a lot of the investments from that 2006 and 2007 investment vintage, and are only managing a couple of investments from that fund. We started investing the second fund in 2008, and is now about 80% invested. We've exited or partially exited a couple of investments, but are still managing most of that portfolio. ...... Simon Eckersley is a co-founder and CEO of Beijing-based HAO Capital with over $500 million under management. Previously, he spent eight years at Goldman Sachs, and was an executive director in the investment management division of Goldman Sachs International in London. He also worked at Charterhouse Development Capital and Morgan Grenfell & Co. previously.

In this episode of China Money Podcast, head of non-listed real estate Asia in APG, one of the largest pension fund asset managers in the world with assets under management of approximately €325 billion, Daan van Aert, discusses APG's investments in China such as car parks and logistic warehouses, his views on the Chinese residential property market and if distressed properties in China present good opportunities for investors. Listen to the full-interview in the audio podcast, watch the shortened video version or read an excerpt below. Q: APG is one of the largest pension fund asset managers in the world with €325 billion under management. Give us some background on AGP's investments in Asia, and what kind of role does Asian real estate play in APG's overall strategy in Asia? A: APG started an office in Hong Kong in 2007 with a mandate for private equity real estate and infrastructure investments. Shortly after, we expanded our team to include listed real estate equity and emerging market equity. Since we started, our portfolio in Asia has grown from €1 billion to €9 billion under management. Of the €9 billion assets currently under management, €6 billion is in both listed (€4 billion) and private (€2 billion) real estate. In terms of geographical breakdown, about 70% to 75% of our total real estate portfolio is in developed markets such as Japan, Hong Kong and Australia. The rest is in emerging markets, and China takes about half of this portion. Q: How much capital are you deploying every year into private real estate? A: We don't have a target. What we do is to look at our already large existing portfolio and focus on strategies and the right partners to add value. If we can find interesting strategies and strong partners, then we will invest more money. During the last few years, we have been investing considerable amount of money continuously. Our real estate portfolio has grown from €1 billion in 2007 to €6 billion, from both investment appreciation and new allocations. That gives you a sense of our growth. Q: What is the average size of your investments and how many investments do you usually keep in your portfolio? A: We serve very large institutional clients, therefore we won't look at transactions under $75 million. In terms of the number of investments we have, we don't really have any preferences, as our global real estate portfolio is already very diversified..... Daan van Aert is head of non-listed real estate Asia of APG (Algemene Pensioen Groep NV) in the Netherlands, one of the largest pension fund asset managers in the world with assets under management of approximately €325 billion. Van Aert is responsible for APG’s €2 billion non-listed real estate investments in Asia Pacific.

In this episode of China Money Podcast, Dalton Investments' Shanghai-based portfolio manager, Tony Hsu, explains how to execute the playbook of Warren Buffett in China, the reasons why Dalton's Asian equity strategy has consistently beat the market and his outlook for the markets in 2013. Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt below. Q: First, give us a brief introduction of Dalton Investments and Dalton's Asian equity strategy? A: Dalton Investments was founded on the opportunities that arose from the Asia Financial Crisis in the late 1990s. Dalton is a value-oriented investment management firm with a focus on capital preservation and long-term growth. Today, we manage about $2 billion in separate accounts in hedge fund strategies for a number of pension funds, endowments, foundations and family offices. Our main strategies include global equities, Asian equities, distressed debt and distressed mortgages. About 50% of our total assets are in Asian equities. We run a Dalton Asia Hedged Strategy, which was launched in the beginning of 2008. Since the inception, the Dalton Asia Hedged Strategy is up nearly 50% while the MSCI Asia Index is down nearly 20%. As of the end of this February, the strategy is up over 6% while the MSCI Asia Index is up 4%. Q: Your Asian strategy uses long-short tactics. What kinds of stocks do you normally short? A: From the long side, we want to invest in entrepreneur-led undervalued companies. On the short side, it is exactly the opposite. Our short book is mostly filled with state-owned enterprises (SOEs) where senior executives tend to be former politicians or state appointees. One of our current short positions is a state-owned oil and gas exploration company in Thailand. The company was pressured by the government to expand aggressively overseas and has made a series of over-priced acquisitions in Canada and Africa. Since 2010, their intangible assets have grown 20 times. We believe if the goodwill gets written down – and we think it will – it will hurt the share price. Q: Within the Asian equities market universe, how attractive do you find the H-share market right now? A: We generally invest in the H-share market and do not invest in the A-share market. There are far more entrepreneur-led companies listed in Hong Kong that are focused on increasing shareholder value, while the Shanghai (Stock Exchange) is filled with SOEs. Currently, we are running about a 30% net long exposure in China through Hong Kong listed stocks. Q: Among your China-themed investments, do you favor any particularly industry? A: We don't. We do, however, favor those family holding companies that are trading at a large discount to Net Asset Value (NAV). Family-led and entrepreneur-led companies in Hong Kong tend to have a pyramid structure. The holding companies at the top own controlling stakes in the groups of operating companies below. The families or entrepreneurs have a lot of their personal wealth tied to the holding company. We want to be as close as possible to the top of the pyramid. Also, many operating companies trade at a discount to their intrinsic value. So, if you are buying the holding company at a discount, and each of the subsidiaries trade at a discount, you are getting a discount upon discount by investing at the top of the pyramid. Q: What are some other valuation metrics you look at? A: We look at many other metrics such as price-to-book and EV (enterprise value)-to-EBITDA (earnings before interest, taxes, depreciation and amortization) on a regular basis. Q: Surely, your due diligence process goes beyond the computer screen? A: Absolutely. Investors have to be careful in emerging markets such as China as managements are not always shareholder friendly. We try to mitigate this risk by investing in companies that are run by entrepreneurs with significant skin in the game. Also,

In this episode of China Money Podcast, founder and CEO of Palico, Antoine Dréan, shares what he sees the fundraising environment will be for China-focused private equity funds this year, and why secondary transactions of Chinese private equity fund stakes among Limited Partners (LPs) will likely double in 2013. Listen to the full interview in the audio podcast, or read an interview excerpt below. Q: First, give us a brief introduction of Palico and Triago, two companies you founded and currently hold positions in? A: I started Triago over twenty years ago. The objective back then was to help private equity fund managers in Europe to raise money from limited partners (LPs) in the U.S. Triago, (as a placement agent), has grown to be one of the market leaders in both fundraising and secondary transfers (meaning we help LPs sell their stakes in private equity funds to other LPs). I am still chairman of Triago, but am no longer involved in the daily operations. I am now very involved in the daily operations of Palico, which is an online "dating service" for private equity GPs (general partners), LPs and service providers such as placement agents or lawyers. We will soon reach 1,000 members from 60 different countries with many blue-chip LPs and GPs. Q: What has Palico achieved in attracting China-focused private equity GPs and LPs? A: Actually, fund managers and investors based in China account for about 14% of our membership base. That is a much higher percentage point compared to their weighting in total fund number and asset-under-management globally. We estimate China represents about 6% of the $3 trillion asset-under-management out there globally. Q: In 2012, the volume of China-focused private equity fundraising has dropped by 50%, mostly due to the decline of RMB fundraising, but USD fundraising also suffered. How have LPs changed their mindset about allocating to Chinese private equity funds? A: According to Palico's own database, fundraising (both RMB and USD fundraising) in China has dropped about one third last year from 2011's all-time high. So the severity of the decline depends on which source you look at. Though a one-third drop is still high, at about $11 billion in total funds raised, 2012 still represents the third best year ever for China fundraising, following 2011 and 2008. Considering growing interests among our LP members and what will be available for global fundraising as private equity "dry powder" (see explanation below) expires, we expect at least the same amount (of last year's fundraising total) will be raised for China funds this year. We estimate there is $100 billion of "dry powder" in Chinese funds, meaning money that GPs haven't invested and that they can still draw down from their investors. This is one eighth of the global private equity "dry powder" of $800 billion. We feel China should take a greater share of global fundraising in coming years as the Chinese economy recovers. Those well structured USD and RMB denominated China funds with good track records will continue to raise funds with ease in 2013.........

In this episode of China Money Podcast, chairman of global markets, China at J.P. Morgan, Jing Ulrich shares her thoughts on where China's economic recovery is headed next, what policies the government is likely to take to contain potential property se...

In this episode of China Money Podcast, S&P analyst Bei Fu discusses the outlook for China's property sector, potential policy moves and property sales predictions. She made the following comments during a teleconference call held by Standard & Poors. Listen to the full interview in the audio podcast, or read an summary below. Will China's property market return to the path of recovery this year? S&P released a report today to upgrade the outlook for the Chinese property sector from negative to stable. This is in consideration of the following three phenomena that we have observed from the thirty or so large listed Chinese property firms that we cover. Number one, property sales have been robust since the second quarter of last year. In January 2013 in particular, we have seen those firms posting very strong sales. Two, the funding channels for Chinese property developers have been favorable, and funding costs appear to be lowering. Lastly, many companies have shown discipline in terms of expansion and financial management. Our upgrade today meant that in 2013, S&P won't have as many negative rating actions as we did last year. We will even possibly have some rating upgrades this year. Of course, these are the large listed developers that we cover. For small-and-medium sized developers, their situations might not be so smooth. Outlook for property sales and policy In 2012, the roughly thirty developers that we rate have posted strong sales. Most companies exceeded their annual target, and on average, sales were 12% over target. Compared to 2011 levels, on the whole, sales were up 23%. Some companies even realized growth of 50% ....... Overall, we see the Chinese property sector under less pressure and staying steady this year. Our Guest Today: Bei Fu is a Hong Kong-based analyst at American rating firm, Standard & Poors. She is responsible for the analysis and rating of the Chinese property sector and its developers.