MONEY MATTERS
As of January, these were 30% less expensive (on average) than their mainland-listed, A-share counterparts, according to the Hang Seng China AH Premium Index. This valuation discrepancy is a result of the strong rally we saw last year in Shanghai/ Shenzhen A-shares, in which Hong Kong has not yet significantly participated. H-shares presently also trade at an approximate 40% discount to the global equity index on a price to earnings (P/E) ratio basis, and only 1.2 times net assets, which means they are among the most attractively priced globally. Investors should also note that even though Hong Kong-listed Chinese equities and related funds may be denominated in US or HK dollars, their income is ultimately derived from the mainland and in Chinese yuan. Such investments therefore provide Chinese yuan exposure and are not endangered by the (albeit diminishing) political turmoil in Hong Kong.
The energy sector Speaking of political turmoil, with regards to the Ukraine situation, it’s clear that sanctions, coupled with the oil price crash have put pressure on Russia’s economy and currency. However, Russia’s relatively low cost of energy production (lowered further by the rouble drop) could put its foreign-currency-earning exporters in a better position than their higher cost counterparts abroad. Moreover, the signing of a new, preliminary gas-supply agreement with China last November, on top of the US$400 billion deal reached in May, suggests a decreasing dependency on Europe. China is looking to reduce its coal usage in order to control pollution and meet its goals under a historic climate agreement with the US.
Source: The CPM Silver Yearbook 2014
Natural gas, incidentally, is not the only energy sector China seeks to expand to this end. 1n 2015, according to a Bloomberg report in November last year, China will likely install enough new solar panels in factories, schools and greenhouses to generate as much as 8 gigawatts of power.
Finally, it is worth noting that silver’s ‘sister metal’, gold, recently received a rather prominent endorsement. Speaking to the Council on Foreign Relations, ex Federal Reserve chairman Alan Greenspan commented that the US bond-buying programme was falling short of its goals with effective demand “dead in the water”.
China has been the world’s biggest solar-energy market for two years running; and the number of small, new solar-power systems installed during 2014 is estimated to have been 10 times higher than that of 2013.
Saying that he did not think it was possible for the US to end QE in a trouble-free manner, he suggested that gold was a good place to invest and that its price was likely to be “measurably higher” five years from now, after having dropped approximately 35% since the summer of 2011.
Precious metals Demand for solar power may, in turn, be supporting a price recovery of the precious metal, silver – perhaps the most beaten-down of all commodities at present. This is because silver is a primary ingredient in photovoltaic cells, that are used to catch the sun’s rays and transform them into usable energy.
To receive a complimentary copy of The Investor Magazine produced by St. James’s Place Wealth Management, contact Martin W. Hennecke on martin.hennecke@sjp.asia.
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February 2015
Indeed, when considering the current low gold price against the backdrop of continued strong Asian demand; the way increased use of the Chinese yuan in global trade is slowly eating into the US dollar’s market share; and rising sovereign debt and inflationary risks across the globe, it seems that Mr Greenspan may well turn out to be correct in his assessment.
@ www.arounddb.com