Culture2 Oct 2015 10:32
I have been digging around into the way business is done in China. This has convinced me that Auhua is not at all suspicious and nothing underhand is taking place here.
Receivables on the books is a problem all across China with companies big and small. It has a lot to do with the central bank tightening too much a few years back to control a property bubble. However, they are now easing pretty fast. Just yesterday they relaxed mortgage lending further and this will continue.
There is risk here of course. But it is most certainly in the price! The market has over reacted to the downside by an extreme margin. I think there is a fair chance that there will have to be some write offs in the future. However, by concentrating on large building companies only, they are limiting any future problems. I think they are being wise here.
I am betting that China will continue to ease monetary policy and may well speed up the easing as a housing bust will be the last thing they want.
All of this means that the eventual rewards should be extraordinary. But it might take a little while. But not as long as you might think. The market prices for the future so we need to see more easing and maybe even some quantative easing from PBC. This wouldn't surprise me in the least. Once the easing reaches a tipping point, the shares will fly. I am still predicting a minimum of 20p at them moment.
The re-rating could start tomorrow or one day next month. There is no way to predict this. And for that reason, I will be staying in as I know that if th shares rose 50% one day, I would by unlikely to buy back in. No, better stay put and wait. Hopefully, the wait won't be too long.
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