Why invest in China? Late last year and early this year, the People's Republic of China was facing a major slowdown in exports due to collapsing demand from the US and Europe. In order to counter this slowdown, the Chinese government has embarked on the largest stimulus package in history - approximately $586 billion. China's government has made Fixed Asset Investment (FAI) a major focus of this stimulus spending. FAI includes spending on roads, railways, subways, airports and other projects. Interest rates were cut and policy changes were designed to encourage consumers to buy real estate. China has also lifted tight credit controls for several sectors including residential developers and municipal infrastructure projects. In fact, much of the Chinese stimulus spending is front-end loaded, as a direct result new construction in China has been already increasing at a considerable pace, as seen by the graph below.
Source: Bloomberg; Data is as of each month end.
One example of a company that could benefit from this government FAI spending is Tongxin International (TXIC). Tongxin makes cabs and other parts for light, medium and heavy duty trucks in China. We believe Tongxin is positioned well to take advantage of the increased need for trucks to complete these infrastructure projects. Tongxin seems to have also engaged an experienced management team. CFO Jackie Chang is a Memphis State MBA who cut her teeth in the automotive industry as a general manager at Nissan, and CEO Rudy Wilson is a GM alumni who led Delphi's charge into Asia during the mid-90's. Heartland does not recommend the purchase or sale of TXIC. The Heartland Value Fund invests in TXIC pursuant to its investment objective and strategy and in conjunction with other investments and considerations for it's diversified portfolio.
Portfolio holdings and manager views are subject to change and discussions of holdings are intended as illustrations of investment strategy, not as recommendations. As of June 30, 2009, Tongxin International represented 0.66% of the Heartland Value Fund's total net assets.
The statements and opinions expressed in the articles or appearances are those of the author. Any discussion of investments and investment strategies represents the Funds' investments and portfolio managers' views as of the date of the articles, and are subject to change without notice.
All economic and performance information is historical and is not indicative of future results. The Heartland Value Fund is a pooled investment vehicle. Independent investment in securities may not perform in the same manner. Reader should not assume that an investment in these securities was or would be profitable in the future. The information is not a recommendation to buy or sell. Past performance does not guarantee future results.
The Value Fund invests primarily in small companies selected on a value basis. Such securities generally are more volatile and less liquid than those of larger companies and there is risk that the broad market may not recognize the intrinsic value of such securities.