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Asian Markets Up; China Mobile to Report Today (CHL)

Posted on | October 20, 2008 Time: 6:33 am |

The Shanghai Index has been essentially flat today, but other Asian markets are markedly higher on the news of a $150 billion “backstop” plan by South Korea for loans and bank capital; The Hang Seng was up over 4% in mid-day trading, while the Nikkei was up about 3%.

The other big news today was China’s release of 3rd quarter GDP numbers. China came in at 9.0% for the third quarter, following 10.1% in the second quarter and 10.6% in the first quarter of 2008.

This takes the annual run-rate down to 9.9% from 10.4% (annualized) through June. While some reports state that the estimate was for 10% growth in the 3rd - and therefore today’s number is a miss - the real whisper number, street estimate, et. al was much lower. Global markets should react positively today, as evidenced by the strong showings of Rio Tinto (RTP) and BHP Billiton (BHP) in Australia trading. Those two companies depend on China for growth more than most, so their rise today signals a broad exhale from those who felt that the China story was being ignored.

Yes, the country has been awfully quiet since the Olympics, but a 9% run-rate on GDP growth is still in line with historical averages (i.e. it is sustainable) and should lead to a floor on global commodity prices this week. I’m looking for improvement in copper, aluminum, steel, and iron ore, amongst others. The soft commodities finished last week well, and if capital markets begin to flow more broadly this week, look for the base metals and finished products to make defined bottoms in the spot market. If the credit markets don’t ease up by at least 100 to 140 basis points this week, then commodities will likely take another leg down.

China Mobile (CHL) reports earnings after the close, and estimates call for between 34% (Credit Suisse) and 43% (Nomura Securities) growth. I would be happy with anything in that range; despite the recent shake-up at the corporate level, China Mobile is poised to benefit from the biggest secular trend on the planeet. And the stock trades for about 10x earnings with almost no debt and a 3.5% yield. A compelling stock no matter what the economic future holds for China in the short-term.

Ryan Barnes

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Category: Basic Materials, China, Metals, Mobile Tech
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