The idea of a North-South, Trans-African motorway, emerged when the construction of the Cape Town-Cairo railway line, cherished by the British, first came to a halt in the 19th century. An expedition first travelled the route, using Crossley cars, in 1924. That was the first successful trip from the South African town to the Egyptian capital. Exactly 90 years later, in 2014, the Egyptian government announced that the technical handover of the Cairo-Cape Town motorway was due soon. The Minister of Transport promised test operation for the beginning of 2015, though that has still not taken place.
While in past decades industrial companies dominated the Chinese stock exchange, today it is dominated by technology companies, so Chinese equity funds are also less exposed to cyclical changes.
by: Gábor KOLOZSI
Ten or twenty years ago, perhaps, there was something behind the fact that the equity funds covering the world's most populous and most dynamically developing country were bought by investors when the economic cycle of growth was picking up. As in most developing countries, raw material extraction and processing, low added-value goods and mainly, semi-finished products have always been heavily dependent on the current income situation of the rich Western European, American and Japanese customers. When the global economic indicators were up, then the turnover and profits of Chinese (Indian, Russian, South American) companies, which were involved in international product chains, also picked up sooner or later. And of course, the trend was also reflected in the share prices at the stock exchange. Or, the opposite occurred when global economic growth was decelerating. The trends fluctuated together with the prices of oil and iron ore, the major raw materials of production, which played an important role in the economic performance of those countries.
Portfolio Manager György Pálfi of Aegon Fund Manager, pointed out that that had been the case until recently though, due to the advancement of the technology sector over the past few years, these stock exchanges are now clearly dominated by information technology. That is especially true in China, where those companies represent the highest (almost 40 percent) weight in the MSCI China stock index, which is a generally accepted guideline of investment funds. While earlier, everyone associated China with cheap gadgets and textiles, these days the highest ranked companies include Tencent Holding, a video-game maker, which now has a 16.2 percent weight in the Chinese stock index (based on the value of the total stock available on the stock markets) and USD 228 billion market capitalisation value. Alibaba Group, the largest Chinese online store (12.45%, USD 175 billion market capitalisation value), is next in line. A ‘traditional’ company, the China Construction Bank, providing financial services, made it to the third level of the podium and is followed by two innovative companies, China Mobile and the Baidu search engine giant, generally known as the ‘Chinese Google’.
The advancement of technology companies at the expense of traditional (industrial) companies may also be observed in other developing countries. For example, the proportion of energy and raw material producing companies has fallen to 13.8 percent from 30 percent in 2011, while IT firms have now increased their market share from 12 percent to 26 percent in the MSCI Emerging Markets stock index. The 10 largest index components are led by Tencent and, alongside Alibaba and Baidu, South Korea's Samsung smartphone company and Taiwan Semiconductors are at the forefront.
This makes it more understandable that the Chinese stock market index is becoming increasingly independent of the traditional raw material-based business cycles. While Chinese companies, on average, accounted for 37 percent (23 percent in euro) exchange rate gains by August this year, the world market price of oil fell by 13 percent at the same time. In addition, the profit of the Chinese ‘tech companies’ is growing steadily, which is no surprise given the fact that they operate in a much larger market (with a population of 1.4 billion) compared to their overseas and European competitors. In the first quarter of the year, Tencent's revenue was up by 55 percent and its profits by 44 percent in comparison to the same period of 2016, while Alibaba's turnover grew by 60 percent. What is more, their market penetration is still quite low so there is room for expansion. Alibaba's turnover is bigger than that of the US companies, Amazon and EBay, together and Baidu, for the time being, is the fourth most visited website in the world after Google, YouTube and Facebook.
The Hungarian stock market is outstandingly in the lead, even in international contrast. The great efficiency may proceed, besides the low interest rate and the booming housing market.
In the past 3 years, the annual profit of 28.8 % on average not only overtook the regional neighbors (Prague -6.39%, Warsaw +0.83%, Vienna +15.01%), but the world’s largest stock exchanges as well. In the meantime, the annual profit in Frankfurt was just 1.33 % and 3.72 % in Paris, even the record breaker New York Exchange barely passed 9 percent. The averagely 12 % increase in the Chinese stocks (which is caused by the skyrocketing growth in the income of the Chinese tech corporations, and the admission of foreign investors to the internal exchange) is far behind the triumph of the domestic parquet.
A great indicator for the improving international opinion concerning the Hungarian economy is the above average performance of the domestic stock market, dominated by foreign institutional investors by nearly 70 percent. The BUX index, which indicates the average fluctuations in the exchange rate of the companies present at the Hungarian stock exchange, quadrupled its value since the bottom of the economical crisis in the spring of 2009, and reached the magical 40.000 points in last autumn. The domestic economy is doing well; in the last quarter of last year, the GDP increased by an estimated 4.4 percent and the gross average earnings almost reached 300.000 Forints, meanwhile the inflation is 2.1 percent in total, and the unemployment rate touched a depth level with 3.8 percent that has never been seen before.
The State assists
The progressive macroeconomic data is observable at the increasing income and profit of the Hungarian companies in the stock exchange, which is a topic of many analyses taken by several Hungarian investment companies organized by the Budapest Stock Exchange.
Such an element is the low interest rate, which is constantly decreased by the Hungarian National Bank since the late August of 2012.The interest rate of the Forint has declined from 7 percent to the today’s 0.9 percent. According to Vice President Márton Nagy of the central Bank, the interest rate could remain low until 2019. The cheap loan is especially good for the OTP Bank (though, the interest gap is under significant pressure), which could profit from the growing loan volume. The loan office runs more than 3 million residential and enterprise accounts, and its stocks have locked on a historical peak (11.750 HUF), in the middle of February. The well-know HSBC Bank from Central-London, appreciated this and offered a target price of 12.900 HUF for the bank papers. The low interest rates (which catalyzes the investments into properties, and the expansion of loans to buy homes), caused a rush in the real estate market, which can be beneficial for several stocks.
For example, the Duna House gains profit from credit intermediation besides real estate business. According to forecasts, the value of its stocks has increased by 15 percent this year, on account of the increasing brokerage traffic and the catch-up with the Polish acquisition. The HQ of Masterplast is in the city of Sárszentmihály within Fejér county. The company which produce insulation material for the building industry,could be the winner of the boom at the real estate market. (According to analysts, the profit rate for 12 months could be 36%.) The distributional stock means good deal, because of the low interest rates. The distributional profit is 3 percent at the GS Park Plc, (where the founder, Gábor Bajor, still own 30 percent) which is a lessor of its office complex in the capital. The estimated profit is 3 percent of The National Printing Office, which is a manufacturer of the new types of documents. The Zwack is a producer of alcoholic beverages and half of the shares of the company is owned by a family. According to the exchange course in the middle of February, the company could pay 5 percent dividend after every stock. It is a good deal if we consider that the governmental securities with a duration of 1 year only guarantee 1.5 to 2 percent, bank deposits do 0.33 percent on average. The Appeninn Holding deals with office complex rental in Budapest, and it can also join the line of the distributing companies, because its exchange rate has been increased by 217 percent in 2017. The course of the CIG Pannónia Insurance company has increased by 126 percent in 2017. After the cooperation with the MKB Bank, the sales cooperation with the saving cooperatives could significantly increase the company’s profit this year.
Beyond the Border
The Hungarian companies are in favor of the international trends; In 2017, the MOL oil company broke profit record with 307 billion Forints (1.11 billion Dollars) in a decade. The Waberer’s carrier company gains profit from the booming European prosperity. If the economy runs better, more carriers are needed. The residential purchasing power is beneficial for the carriers. Last year’s Polish acquisition, which was the integration of the Link company, might gain significant profit as well. Poland is the regional center of the web shop of Amazon.com. The world leader company has reached 178 billon dollars in cash flow, and set up its fifth logistical base. According to estimations, the stocks of the Richter pharmaceutical company may grow by nearly 30 percent this year, because of an international affair. The European Medicines Agency has stopped the distribution of the Esmya, (because of the side effects in some cases) which is a world class medication for treating the gynecological myocyte. However, the result of the investigation is expected to be positive for the company.