Monthly Letter Juli 2015

A couple of years ago China was cking along nicely on an ever increasing boom led by mainly xed asset investments, urbanisa on and industrialisa on. When we met companies together with other investors, we all wanted to get an update on how they bene ted from the boom in China. Internally we spoke about this in the o ce as “What about China?”, i.e. investors wanted to get a con rma on of something (anything really) bullish about the companies’ Chinese expo- sure. The ul mate experience for Madrague was at a Chinese conference in Shanghai in 2004 when an interna onal investor was assigned a mee ng with a Taiwanese company and totally aghast explained that he wanted to meet a Chinese company. When the coordinator asked which company he wanted to meet the answer was simply: “I don’t care as long as it is Chinese”. Many things can be said about such a statement, but it is quite common when an investment theme is “hot”. We’ve seen similar things during the internet bubble, US housing bubble, to men on a few.

The sen ment towards China is rather the opposite at the moment. What about China? is now a way of trying to get a grip on nega ve exposure. In our last monthly le er we commented on the Chinese authori es’ a empts to control the equity market. Maybe it was a precursor to bad data coming out of the country. Comments from European automakers like Volkswagen and BMW in their q2 reports did not read well. The o cial auto-sales numbers coming out of China during the summer has not been good either. Match that with the notoriously low electricity consump on, cement consump on and railway transporta on and it is easy to become a li le nervous about what is happening in China.

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