Interview: Huaneng Power
>> higher coal prices this year% -trimmed profit at chinese power producers, including juanening power international. demand for power has surged due to expansion in china. shares of huaneng have fallen 4% while huadian power have fallen, as well. yang lui told haslinda amin power will continue to grow.
>> if you invested in huanening power, you made three to five times earnings. this sector will consolidate, depending how much the capacity will increase. nevertheless, this is still the safest sector, very much correlated with chinese consumption growth. as you know, in china, there are over 20 provinces with very much a shortage of power. so i guess this sector will continue to be a relatively safer play.
>> given that you say it’s a safe sector linked to the chinese economic growth, what returns are you expecting?
>> going forward, the return will not be as exciting as it was in the past three or five years but i believe this sector will have double-digit growth. i feel now that, from 2000, the power consumption has very much correlated with g.d.p. growth. it’s 1.5 times of the g.d.p. growth, the ratio, relatively speaking. in this sense, if g.d.p. growth is around 8% to 9%, the power consumption growth will be around 15% to 20%. that would come to the companies you particularly mentioned, huaneng, huandung and china power. as you know, in china, there are only three or five big names are going at this stage so investors can follow them and participate in this sector so bankly we have―bankly, we have -- basically we have to have weighting in one of these names but maybe you should diversify to sectors.
>> which sectors do you recommend?
>> the ones that would supply the i.p.p., basically, power generations. for example, the coal, alumina and copper. these sectors are relatively positive because these are three commodities that will have a big year next year.
>> yang lui, what are the risks to inflation in china because of the record coal prices we’re currently seeing?
>> the coal price just started to trend up from last year, purely on a demand basis. as you know, copper is a non-recovering resource. basically, you consume and there’s less and less reserve. so, in china, around 70% to 80% of chinese energy consumption from coal, we are still a coal basic energy company. in this sense, i think the coal price will continue going up and next year will be a big year for the coal prices and coal industry to play so, basically, given the construction and capacity of constraints, i think the coal price will stay firm.
>> we know china has the world’s fastest growing major economy and needs commodities like oil and coal to fuel it. how concerned are you that demand for commodities may outstrip supply, slowing china’s expansion?
>> it’s hard to generalize the whole commodity price trend going forward but we have to be very specific on a few sectors we are following. basically, we have to closely monitor the demand-supply condition situation, plus the commodity production capacity. some production capacity will go up. for example, like petro chemicals and cement and aluminum, they probably will not be as expecting like before but some sectors, like copper, coal and alumina, they will stay firm because the demand craving is still there given the massive public construction, the demand for residential properties, the power generation facilities will expand. all this overlaps the weaker dollar and the copper price will continue to outperform. so basically, if you stick to the monopoly play, the market leaders, you will probably be in the winning position.
>> that was yang lui of atlantis investment.
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Listen Interview: Jump in crude
we’re waiting for consumer prices out of south korea. korea finance ministry said in early december it may miss its target, though, of 5% economic growth next year unless taxes and interest rates are cut even further. in terms of what we’re expecting in terms of consumer prices, we are looking for them to rise .1% in november according to economists surveyed by bloomberg. we’ll be waiting for the numbers and bring them to you as they come. let’s look at what’s happening with gene otani, waiting for us to give us the latest on what’s happening with stocks after we saw that jump in crude, up just about $2 a barrel. gene?
>> looks like crude oil futures currently trading at $43.45 a barrel, down by .4%. australia starts with their trading session in less than 30 minutes. we’ll keep an eye on woodside petroleum, australia’s second largest exporter of fuel, and santos, the country’s third largest. news corporation’s fox television network is charging a record average of $2.4 million for advertisement during the super bowl in february. 6.7% more than last season’s national football league championship game. the super bowl may generate $139 million in revenue for fox based on that rate and help the network boost sales. rogers communications, canada’s biggest cable television company, acquired the remainder stake of what it didn’t already own in rogers sportsnet for $37 million from news corporation. copper prices fell amid speculation hedge funds sold to lock in this year’s 39% rise in prices. prices have risen largely on increased demand from china and accelerating growth in the u.s. we’ll be watching b.h.p. billiton, the world’s third biggest copper producer. rio tinto is the fourth biggest copper miner. gold prices in new york fell almost 2%, the most in three weeks, as a gain in the dollar against the euro eroded the appeal of the precious metal as an alternative to u.s. stocks and bonds. newcrest mining, australia’s biggest gold mineer, will be monitored, as well. all four analysts surveyed by thomson financial this month have upgraded their net income forecast for 2005 and 2006 for fletcher building on expectations earnings will be boosted by commercial construction work as home building slows. fletcher building up .7%, leading the top 50 new zealand index. we see gains in contact energy, .6%. telecom new zealand currently unchanged.
>> we have breaking headlines coming out from south korea. we’ll tell you what’s happening. south korean december consumer prices rising .2% from november, that is coming in higher than what economists we surveyed expected, they were looking for .1%. we see a year-on-year basis, consumer prices rising 3.0 we’ll get the latest from tai hui with standard chartered bank. what you do think about the figures coming in right now?
>> i think the numbers are slightly below what we were expecting. we looked at previous months indicating .4%. this suggests the inflationary picture in south korea, is tame as the bank of america will have room―the bank of korea will have room to raise rates further.
>> the plan was to keep rates lower to increase investment. what’s going on there as it doesn’t seem to be happening?
>> it has to do with consumer and investor sentiment largely due to the correction of the household balance sheet in south korea. what we expect in 2005 is a combination of simulation of monetary and fiscal policies so hopefully that will kickstart the consumer and investor sentiment and hopefully start expansion. the spending environment is somewhat more questionable but we believe that korea should be able to achieve growth of 4.5% to 5% next year in south korea.
>> what do you think will be the impact from higher crude oil prices and a strong yuan? a strong won makes imports cheaper and helps offset the negative impact somewhat from higher crude oil prices but is it enough to offset that?
>> i think the strong won should be able to offset partly the impact of high oil prices. looking forward, we do expect oil price to be highly volatile but on a downtrend for the next six months or so. so a stronger won should be able to help offset that impact and that will allow the bank of korea to maintain low interest rate policy because the inflation is likely to remain tame.
>> would weak be domestic demand encourage authorities to sell the won to protect exports? if that is the case, at what level do you think the b.o.k. will intervene?
>> i think there is a debate between the minister of finance and also the bank of korea. the bank of korea seems to be fairly constable to stay away from such intervention where mofi seems to be keen to maintain export competitiveness. i believe with the actions so far from the bank of korea, it is likely to remain comfortable with a stronger won as long as it’s not too volatile to create uncertainty for businesses.
>> judging from recent economic data from korea, do you think the won will head higher in 2005?%
>> we expect the won to strengthen in 2005 but that’s along with the rest of asian currencies, on the back of the weaker u.s. dollar. especially given the fact that we do expect the chinese rem peg to go in the first half of 2005, allowing the korean currency to appreciate somewhat against the u.s. dollar, as well. another thing to watch is the japanese yen, given the korean authorities tends to have close interest on the korean won-yen cross exchange rates.
>> thank you very much, tai hui from standard chartered bank. coming up, the yen falls to a record against the euro. traders and investors speculate the b.o.j. will sell the currency in the coming days.
