Investment

Dr. Alyce Su, founder of China Queen Capital, specializes in investment

management managing portfolios consisted of investment opportunities
originated from China’s growth and internationalization, both outbound and
inbound. Hereinafter is her advice on investment strategy in the four coun-
tries of BRICs except China, UAE, South Africa, Europe and Asia.

Dr. Alyce SU on China Overseas

Investment Strategy
ing 70% of MSCI Latin America’s total
market capitalization of US$ 1.4 tril-
lion. Internally Brazil has five econom-
ic zones. The rise of Brazil’s middle
class will bring opportunities in bank,
real-estate, telecom, and consumer fi-
nance.
Part. Rio Polimeros, Brenco, OuroFi-
no, Valepar.
(ii)  Brazi l ia n domest ic con-
sumption targets including Brasil
Foods.
(iii)  Brazilian China export tar-
gets including Petrobras, Vale.

Brazil Investment Logic

Brazil
Brazil Investment Background
B r a z i l ’s N a t i o n a l B a n k f o r
Economic and Social Development
(BNDES) (similar role to China De-
velopment Bank) is Brazil’s leading
long term loan provider to Brazilian
domestic enterprises. BNDES’s subsid-
iary BNDESPar holds shares of Brazil’s
listed and unlisted companies. Since
2010, BNDES and BNDESPar have
been restructuring investment portfolio
by selling shares in Fibria and 2.4% of
Banco de Brasil for cash for making fu-
ture loans. It’s 5.3% shares in VALE is
widely expected to be the next liquidity
event.
Brazil’s external position in Latin
America is similar to China in Asia,
producing 43% of 2009 Latin America’s
total GDP of US$ 3.7 trillion, occupy-
For China investing in Brazil,
three potential tactics:
(i)  BNDES and BNDESPar’s
holdings in the financial, natural re-
source, infrastructure/railway, food/
agriculture, utilities, both 26 listed
and 8 unlisted companies, where (a)
Shares BNDESPar wants to sell, Chi-
na can buy if price is right (b) Shares
BNDESPar does not want to sell,
China can extend loans (c) Industries
BNDESPar want to support by mak-
ing loans, China can invest in industry
leaders.
(ii)  Brazilian companies benefit-
ting from Brazil’s domestic consump-
tion growth.
(iii)  Brazilian companies benefit-
ting from exporting to China.
Brazil Investment Targets
Applying the above investment
logic, we have:
(i)  BN DES a nd BN DESPa r
owned targets including (listed) Fi-
bria, Klabin, Vale, Gerdau, Brasil
Foods, Copel, Light, CESP, CPFL
Energia, MPX Energia (unlisted)
Brasiliana, BomGosto, CEG, Telmar
Russia
Russia Investment Background
Russian economy is driven by
(a) oil price (b) Ruble/US$ exchange
rate, managed e x ter na l ly v ia t he
energy-stabilization fund, internally
through ta x and price control, to
buffer its sensitivity to commodity
cycle. Three major state-owned banks
Sberbank, VEB, VTB, provided li-
quidity during 2008 financial crisis.
Debt level is high for almost all Rus-
sian enterprises, with revolving loans.
Recently, Ruble’s appreciation pres-
sure against the US$ came from (i)
stronger energy price (ii) weaker dol-
lar (iii) global liquidity into emerging
market. Russia would tax the energy
income into the fiscal gap first, once
filled put into the energy stabiliza-
tion fund, while pegging Ruble to a
basket of US$ and Euro. This handles
stronger energ y price and weaker
dollar well, except global inflow into
Russia. Russian resource companies
have begun the wave listing in Hong
Kong Stock Exchange, much Russian
wealth has also been accumulated in
Russia’s sovereign wealth fund.

66

Russia Investment Logic
For China investing in Russia,
the key is who you know, not what you
know, so Russian private equity deals
have often been done by giving an
interest-rate-free personal loan to the
owner of a company in exchange for a
stake in the company.
Russia Investment Targets
For China investing in Russia, co-
investment may be key:
(i)  Co-invest with private equity
divisions of major state banks, Sber-
bank, VEB, VTB.
(ii)  Co-invest with Russian’s sov-
ereign wealth fund for Russian resource
IPOs in Hong Kong.
India
India Investment Background
India’s f ledgling logistic system
forced India to traditionally export its
human resource to the west by software
outsourcing, pegging its growth to de-
veloped countries’ capital expenditure.
Today, India’s major industry develop-
ments are as follows:
(iv)  Auto: 30,000R to 50,000R
priced cars experience the most compe-
tition.
(v)  Consumer Staples: High
penetration low growth goods include
soaps, detergents, tea. Low penetra-
tion high growth goods include coffee,
chocolate, ice cream.
(vi)  Fertilizers: Good chemical
producing capability.
(vii)  Financial Services: PSU,
Private Bank, NBFC, 3 categories. Car
loan CAGR 13% to 15%. Mortgage
CAGR 13% to 18%.
(viii)  Healthcare: Generics indus-
try strong, US$ 53 bn to expire in the
near future.
(ix)  Industries/Infrastructure: In-
dia 11-5 Plan budgeted US$ 500 bn for
new infrastructure.
(x)  Information Technology: 2010
CAGR 15% to 20%, adding 75,000
new employees.
(xi)  Material/Cement: Oversup-
ply, low capacity utilization.
(xii)  Material/Metal: Steel de-
mand still strong.
(xiii)  Media: FY10-12E digital
entertainment 39% CAGR. Advertis-
ing CAGR 15%.
(xiv)  Oil & Gas: Empowered
Group of Ministers increased price for
Gasoline, Diesel, etc.
(xv)  Real Estate: 7 categories:
Mumbai, Gurgaon, Noida, Greater
Noida, Bangalore, Chennai, Hydera-
bad, average inventor y 11-month
(compared with 2008 4Q inventory 37-
month).
(xvi)  Telecom: 3G and Broadband
Wireless Access licenses have been
granted.
(xvii)  Utilities: Power generators
IRR 27% to 60%, payback period less
than 5 years.
India Investment Logic
China’s investment logic towards
India may leverage India’s younger
demographics, playing LP to India’s
GP, or playing co-GP to India lead-
ing conglomerates, extracting IRR
out of India. Once China has taken
a position in India, China can export
its infrastructure building capability,
benefitting its own investment. Such
“infrastructure for equity” strategy is
different from the “loan for resource”
strategy deployed elsewhere.
India Investment Targets
Applying the above investment
logic to India’s key industries, we have
these Indian companies:
(i)  Auto:MarutiSuzuki. Hero
Honda.
(ii)  Consumer Staples:Colgate
Palmolive (India). Dabur India.
(iii)  Fertilizers:Tata Chemicals.
United Phosphorus.
(iv)  Financia l Ser v ices: PSU
(Bank of Baroda), Private Bank (Axis
Bank), NBFC (Housing Development
Finance Corporation).
(v)  Healthcare: Apollo Hospitals.
Biocon. Cadila Healthcare.
(vi)  Industries/Infrastructure:
Everest Kanto Cylinder. Sintex Indus-
tries.
(vii)  Information Technology:
HCL Technologies Ltd. Infosys Tech-
nologies.
(viii)  Material/Cement: ACC.
Ambuja Cements.
(ix)  Material/Metal: Hindalco
Industries. Hindustan Zinc.
(x)  Media: Dish TV India. Sun
TV Network. Zee Entertainment En-
terprises.
(xi)  Oil & Gas: Bharat Petro-
leum. Cairn India Ltd. Gas Authority
of India.
(xii)  Real Estate: Anant Raj In-
dustries. DLF. Housing Development
& Infrastructure.
(xiii)  Telecom: BhartiAirtel. Idea
Cellular. Reliance Communications.
Tata Communications.
(xiv)  Utilities: Adani Power. JSW
Energy. LancoInfratech.
67
Investment
United Arab Emirates
United Arab Emirates Investment
Background
Oil and natural gas are key asset to
the region. American Energy Informa-
tion Administration counts the follow-
ing 16 Middle East countries “Saudi
Arabia, Iran, United Arab Emirates,
Kuwait, Iraq, Algeria, Libya, Qatar,
Oman, Egypt, Syria, Yemen, Tunisia,
Bahrain, Israel, Morocco” occupying
global oil reserve 65%, and global natural
gas reserve 46%. Countries in the Gulf
Cooperation Council (GCC) included:
Kuwait, Bahrain, Saudi Arabia, Qatar,
Oman, and the United Arab Emirates
(UAE). Within the United Arab Emir-
ates, there are Abu Dhabi, Dubai, Shar-
jah, Ajman, Umm al-Quwain, Ras al-
Khaimah, and Fujairah. 2010 first half
China imported oil from “Angola, Saudi
Arabia, Iran, Sudan, Russia, Kuwait,
Venezuela, Oman, Iraq, Kazakhstan,
Brazil, Yemen, Congo-Brazzavile, and
the United Arab Emirates”, i.e. mostly
Middle East countries.
United Arab Emirates Investment
Logic
China’s investment logic towards
the United Arab Emirates, since China
imports so much energy from the re-
gion, is what China can make from
investing above the land, minus what
China must pay for below the land.
United Arab Emirates Investment
Targets
United Arab Emirates, given its
68
rich reserve underground, is not short
of capital, except Dubai. Dubai tried to
become the financial center in United
Arab Emirates by offering real estate
and infrastructure projects but over-
leveraged itself. Case in point, Dubai
Port World (DPW.DI), which is 80%
owned by Dubai World, 20% owned
by public. If Dubai World needs to
partially sell off for debt repayment, it’s
holding Dubai Port World is the 4th
largest port in the world, after PSA,
HPH, APMT, these four ports occupy
29% of the entire world’s throughput
measured in million TEU. Dubai Port
World’s market share from 2005 to
2008 has risen from 2.5%, 5.9%, 5.8%,
to 6.3%, since most of its counterpar-
data, of proven global reserves, South
ties are in the emerging markets such as
Africa owns 80% of platinum and 57%
China, India, Brazil, Russia, Indonesia,
of palladium, yet Johnson Matthey 2010
Mexico, Turkey etc, its estimated 2010
platinum survey suggested South Af-
to 2015 market share CAGR is 9.1%.
rica’s production has topped at 2006 and
Dubai Port World’s 2009 net profit
been declining since. On the contrary,
is US$ 332.9 million, 2010 estimated
China’s demand of platinum and pal-
net profit US$ 424.1 million, with an
ladium has been rising from domestic
EBIT margin of around 20%.
jewelry and auto consumption growth.
South Africa South Africa Investment Logic
South Africa Investment Back- For China investing in South
Africa, Platinum and Palladium are a
ground
pure supply-demand play, i.e. a declin-
South Africa has been a leading
ing supply (South Africa) to a growing
producer of precious metal (defined as
demand (China).
gold, silver, plus the platinum group
metals including ruthenium, rhodium,
South Africa Investment Targets
palladium, osmium, iridium, and plati-
num, a total of eight elements) which Applying the above investment
are often used in the jewelry and auto logic, we have:
industry. According to MEG 2007 (xviii)  ETF of Platinum and Pal-
ladium.
(xix)  Companies such as Eastern
Platinum (a producing junior), or We-
sizwe Platinum.
Europe
Europe Investment Background
European companies that can still
secure consumers from Brazil, Russia,
India, China (BRIC) will continue to
grow, when synergistic they may also
introduce BRIC shareholders. Instead
of “haves and have-nots”, this secular
trend will separate the ones that still
want to compete globally vs. the ones
who just want to collect social welfare.
Countries such as Germany, France,
Switzerland, Czech, the Nordic, still

have high-tech manufacturing core
competency to export. Countries that
consider finance expertise are com-
ing to Asia to acquire Asian high-net-
worth customers. The rest European
countries are selling down shares of
state-owned enterprises, real-estates,
and remodeling museums for tourism.
Besides BRIC consumers, European
companies that can secure German
consumers may also be considered
relatively competitive.
Europe Investment Logic
For China investing in Europe,
the strategy might be “selectively in-
vesting in Europe’s productivity to help
protect Europe’s competitiveness”. Two
types of European companies can be of
particular interest:
(i)  European companies with sig-
nificant BRIC revenue.
(ii)  European companies with
significant German revenue.
Europe Investment Targets
Applying the above investment
logic, we have:
(i)  European companies with
significant BRIC revenue, including
Pirelli (40%), Grupo Santander (42%),
HSBC (46%), Standard Chartered
(71%), Anglo American Plc (42%),
BHP Billiton Plc (45%), Kazakhmys
(40%), Holcim (53%), Marie Tec-
nimont (68%), Wienberger (55%),
Danone (40%), Uniever (43%), ABB
Ltd (42%), Intertek Group (42%),
MTU Aero Engines (40%), Outotec
(55%), Rolls-Royce (48%), Sulzer
AG (4 3 %), Wa r t s i l a
(B) (45%), Weir Group
(41%), Swiss Re (47%),
Cairn Energy Plc
(100%), Saipem (48%),
SBM Offshore (68%),
S e ven Ma r ine (63%),
Beiersdorf (36%), Brisith
A m e r i c a n To b a c c o
(35%), Richemont (33%),
A SM L Hold i ng N W
(50%), CSR plc (52%),
Ericsson (50%), Nokia
(57%), STMicroelectron-
ics (50%), Portugal Tele-
com (46%), Telefonica
(41%).
(i i)  E u r o p e a n
companies with significant German
revenue, including Porsche A ml.
Hldg (Xet) (28.6%), Volkswagen (Xet)
(28.4%), Geberit ‘R’ (33.9%), Sued-
zucker (Xet) (32.1%), Tomra Systems
(39.2%), Allianz (Xet) (34.4%), Sky
Deutschland (100%), Axel Springer
(79.0 %), Prosieben Sat 1 Med ia
(69.5%), Kabel Deutschland Hldg.
(100%), Loewe (59.6%), Schulthess
Group (30.7%), Gagfah (100%), Fiel-
mann (81.4%), PraktikerBauheim.
H ldg (71.4%), Douglas Hold ing
(64.9%), Metro (Xet) (40.5%), Charles
Vogele (38.5%), Wincor Nixdorf (Xet)
(27.9%), Deutsche Telecom (Xet)
(36.9%), Bwin Intact. Entm (32.0%),
Tui Travel (27.1%), Thomas Cook
Group (30.0%).
Asia
Asia Investment Background
Asia at the end of 2010 has rela-
tively strong space-time boundary condi-
tions. Leadership changes for China and
America by 2012 call for policy initiation
and continuation 2011-2012, Asian coun-
tries between China and America will be
influenced accordingly. America has ties
over China’s three corners of Northeast
(Japan, South Korea), India, and Singa-
pore, granting Singapore a strategic role.
By investing in China’s financial industry,
increasing linkage between Singaporean
and Australian stock exchange, discuss-
ing FTA with Taiwan, Singapore is in a
good position advising America in Asia
by helping America managing its Asian
exposure.
Asia Investment Logic
America is likely to befriend
Asian countries such as Japan, Ko-
rea, India, Australia, and Taiwan.For
China investing in Asia, the scarcity
is clean natural resource and political
stability. Asian countries valuable to
both America and China are benefi-
ciaries.
Asia Investment Targets
Applying the above investment
logic, we have:
(i)  North Korea: peace.
(ii)  Japan: government debt.
(iii)  Taiwan: TDR.
(iv)  Malaysia, Australia, New
Zealand: natural resources, beaches,
real estates.
(v)  Papua New Guinea: natural
resources.
“Sinosteel-Monaro MOU”
China Overseas Investment Strat-
egy done by Dr. Alyce SU of China
Queen Capital (HK) Ltd, helping an
Australian Stock Exchange (ASX)
listed company Monaro (MRO) selling
its Kyrgyz Uranium asset to China’s
leading state-owned enterprise Sinos-
teel. Below please find the official an-
nouncement.
30 January 2008 ASX announce-
ment
MONARO SIGNS MoU
W ITH SINOSTEEL FOR THE
STRATEGIC ASSESSMENT AND
DEVELOPMENT OF KYRGYZ
URANIUM PROJECTS
Highlights
• Agreement with Sinosteel Cor-
poration to assess and develop Kyrgyz
uranium projects.
• On individual licenses Sinosteel
can earn:
40% interest in selected projects
by conducting exploration and scoping
studies; and 60% interest in selected
projects by completing feasibility studies.
• Sinosteel may be issued share-
price options of up to 1.9 million shares
in Monaro, exercisable atAU$1.00
each.
To contact Dr. Alyce SU, please
email alyce.su@chinaqueencapital.
com, or call +(852) 6187 3268.
69