So here’s the scoop – China increased interest rates by 27 basis points. Most of Asia’s markets rallied earlier in the day, and upbeat news on more mergers has already pushed up the DJI by 100 points.
Market looks like it’s recovering nicely. But then again, tomorrow can be another pop goes the weasel.
Sinopec is more on the lines of what I wanted to talk about today. There are a few pointers why I think they’re a good buy. A. the latest inflation data over in China suggests that the chances of the government cutting gas prices to control the inflation is high, meaning that more subsidy and government funding is likely – look at what they’ve already done with interest rates, a good indicator.
B. Oil prices are down over 25% since last May, and domestic prices are now more in-line with international prices (previously there was a small discount). A cut in fuel tax will also be more likely than not.
Add A and B together, and that’s good news for Sinopec.
Meanwhile, their fundamentals have been improving as expected. Their development with their Puguang project, likely to be as large as the West-East pipeline, will mostly boost up their reserves and upstream activities.
Also note that with current weak crude prices, there’s normally an underperformance in the market. With Sinopec’s sizeable downstream operations, they shouldn’t be as sensitive to the falling crude prices. Conversely, if crude prices rose back above 60 to 70 dollars a barrel in 2007, investors would normally switch back to upstream oil producers – something I don’t see to be very likely.
Sinopec will be releasing their 2006 earnings either April 4, or April 10. I think their profit should reach 51 billion Chinese Yuan (about USD 6.25 billion).