Invest in China

Why the China Region?

China Region = Mainland, Taiwan and South Korea

Competitive: A trade surplus of 200 billion US$ underscoreshow competitive Chinese enterprises are today

RMB Revaluation (or free currency float): the question is when no if. This will mean that Chinese sharesget a higher value in terms of Danish Crones

There has been a string of very succesful IPOs suggesting that the Chinese people is getting interested in investingin stocks of their home market

China Region

The Chinese Capital

Savings are about 40% of the GNP, i.e. about 5 trilion RMB.Most of these savings are on bank savings accounts with lowInterest rate (return)

Chinese people are getting interested in investing in shares. But do they have the capital for it?

My point

China Region

Good Company (share)

Technology

ChineseCapital

What is a share?A share is a part of a company. First of all it is a part of thatcompanys future earnings. If those earnings vanish or even turn negative for too long, the value of the share will converge towards zero.

Therefore: The management of that company get paid with your money so you want them to be capable and comitted to generating an increasing profit for the company and hence a profit for you. That said: be patient. To get to the top of the mountain, one often has to take a cumbersome detour (grafik)

Why technology?Technology

Why technology?

In 2004 China imported 160 billion US$ worth of hightech Products, 8 times more that it did in 1994. This amounts to 120 US$ or about 1000 RMB for every single chinese.

For semiconductors and other electronic components alone, China has a trade deficit of 59 billion US$.

This means: China is increasingly hungry for technology andIt needs imports to satisfy this hunger

2 reasons for this hunger

1. China needs more raw materials. Technology replaces raw materials or encounter the scarcity of it.

2. China has always given high priority to education,

and Information Technology is a great tool for that.

Example: Solar cells and LEDs

• Saves energy, material and environment• Can provide light and energy locally without powergrid

LED Applications

Enourmous color varity

A. Company must have great share of the Chinese market or a product that will be interesting for the Chinese market

B. Company must have a solid history of making profits

C. Company must have clever and committed management

D. Company must shape its own market

Which companies?

Good CompanyThe four-way test

Case 1: Lenovo Holdings

Lenovo founded in Beijing in 1984 is today the third largest computer manufacturer of the world (after DELL and HP) after acquiring the PC-division of IBM. This acquisition underscores the true global vision for the company. Lenovo is dedicated to becoming the biggest, most profitable and most innovative computer manufacturer around

The four-way test on Lenovo

A. Lenovo has 35% share of the Chinese computer marketB. For 8 out of the last 10 years Lenovo has made strong profit

and high ROIC (Return On Invested Capital)C. Lenovo has clever and committed management that admits

its own mistakesD. The company has always been the pioneer an leader of its

market

The Trigger: A RMB revaluation will have strong positive effectOn Lenovo profit because this profit is generated from buying Components in $ and selling in RMB.

Case 2: Taiwan Semiconductor Manufacturing Company

Founded in 1987, TSMC the worlds number 1 semiconductor foundry. Foundry refers to the concept of manufacture services for companies that do not have the size and capital to have their own manufacture facility. Today it costs more than $5 Billion to build a wafer factory of competitive quality and size. Therefore, TSMC is the virtual factory of primarily small innovative chip design companies throughout North America and Asia

TSMC - The four-way test

A. China has a huge trade deficit on semiconductors. Demand is estimated to increase 30% annually

B. TSMC has shown impressive profit margins for the last 10 years.

C. The founder, Morris Chang is still chairman of the Board.D. TSMC invented the foundry semiconductor business and

has consistently led it since then with revenue more that double of its closest competitor (UMC), higher profit margins and technology leadership.

Case 3: Seoul Semiconductor Company

Founded in Seoul in 1987, SSC makes LEDs for all applications. The company is aiming to be among the 3 world top LED manufacturers. SSC makes systems, not LED chips and its core competence is in packaging and flourescence materials.

The four-way test on SSC

A. LEDs are very interesting for the Chinese marketB. SSC has made profit for every year during the last 6 yearsC. The CEO is there since 1992D. Together with American Cree, SSC is leading the way in

the new white AC LEDs. The 2 companies are sharing patents

The UPstream Portfolio

11. Lenovo 2. Samsung Electronics3. Taiwan Semiconductor Manufacturing Company4. Topsil5. Danware6. Seoul Semiconductor Company7. NC Soft8. Diodes 9. Optical Communication Products

Advice

”It is much harder to follow good advice that it is to give it”

John Fitzgerald KennedyPresident of the United States 1961-63

My Service

Invest your money in The UPstream Portfolio of Technology shares that will prosper wth the China Region. Then I will make sure that the good advice is followed.

The Portfolio has shown an annual return of 18% for the last 4 years compared to the Nasdaq Technology Index that has shown only 11%.

Win-Win situation: Only if your return is better than The Nasdaq Index, will my service as Portfolio Manager be of any cost to you. Then I will charge ¼ of the return above The Nasdaq Index.

Conclussion

Shares of good technology companies that are active in the China Region offer better than average return/risk

Take my advice: Invest in these shares

Even better: Invest in The UPstream Portfolio so that things are taken care of in time