by Raymond Chan

What happened last month?

Over the week, ASX 200 +1%, Nikkei 225 +2.4%, Dow Jones +1.1%, Hang Seng -0.4%, Shanghai -1.3%, FTSE -2.6%, NASDAQ -2.6%, Iron Ore -1.7%, Oil -2.3%, Gold -4%, AUD/USD +3.3%

Hong Kong Mines & Money Conference

Latte with Ray is no stranger to Hong Kong, where my dad (and now my brother) have been running business there over the past four decades. This time, it’s great to travel here again, along with a group of Morgans Analysts, Corporate Advisors and Corporate Clients. We attended the Mines & Money Conference and Hong Kong Rugby during the week. Latte with Ray was pleased to be invited to one of the corporate box of a major global accounting firm. Speaking of global companies, do you know there are plenty of them appointing Chinese as CEO or senior management? Latte with Ray has no doubt the future deal flows are mostly from China.

Hong Kong mines and money – our house feedback

Company / Investor make-up is evolving

Attendance has been reasonable this year. About half of all presenting companies are Australian (ASX listed) with the remainder mostly Canadian (TSX listed). With the TSX hosting far more junior miners than the ASX (i.e. far more companies struggling for capital), it's clear the Canadians are now competing harder for Asian funding compared to previous years.

What is Private equity thinking?

Small companies are likely to remain private for longer in the current tight climate for capital. I.e. Private Equity is looking to fill the void left by difficult equity markets for development capital. However private equity most likely won't invest in the first drill hole = bad for greenfields explorers. Most PE groups copper, gold, coking coal and potash as decent commodities to invest in. None so far have mentioned iron ore - possibly because valuations are inflated.

Plenty of funds waiting on the sidelines

Depending on who you believe, there's anywhere between $15-50bn of capital sitting on the sidelines awaiting investment so when the "turn" comes, and the herd moves together, then activity levels could be big. When this may happen is the big question. Many groups are in the "courting phase" where private equity is looking for investment but waiting for falls in valuations and vendor expectations before jumping in. Only the best assets will get funded.

Headline corporate presentations

Fortescue Metals - Just a glossy overview with no real room for questions - no real new news here

Robert Friedland - Ivanhoe - Classic permanent-bull Freidland chat maintaining a very positive tone on Chinese growth. His best picks are copper and zinc (a dog no more apparently).

Most interesting "theme" - Air pollution in China

China's chronic problem with air pollution is a major talking point among Chinese investors who give us the impression that the regime is very serious about tackling the problem. Apparently China is in the midst of an "airpocalypse" of pollution. Xinhua (China's government newspaper) said this week that "A country with a brown sky and hazardous air is no longer beautiful".

It's a big deal that China is finally admitting to the problem. Investors are expecting major initiatives on containing environmental issues. This means containing sulphur pollution from cars and power generation. China has 90m cars on the road, which is expected to grow to 400m by 2030...pollution is a MAJOR issue.

Basically, this shows that Japan's industry was every bit as polluting as China's during the height of its major period of industrialisation and growth in the 1970's. Through investment in catalytic conversion technology for cars, scrubbing and filtration on the back end of generators and cleaner coal sources from Australia, Japan's power industry is now relatively 'clean' and pollution is controlled. This augurs well for sources of cleaner burning thermal coal (such as Australia) should China choose to follow the same path.

Disclaimer – Morgans Financial Limited (Morgans)

This report is provided for general information purposes only and is not intended as an offer to enter into any transaction.  This information contained in it is not necessarily complete and its accuracy cannot be guaranteed.  We have prepared this presentation without consideration of the investment objectives, financial situation or particular needs of any individual investor.

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The information contained in this presentation has been taken from sources believed to be reliable. Morgans does not represent that the information is accurate or complete and it should not be relied on as such. Any opinions expressed reflect Morgans' judgment at this date and are subject to change. Morgans and/or its affiliated companies may make markets in the securities discussed. Further Morgans and/or its affiliated companies and/or their employees from time to time may hold shares, options, rights and/or warrants on any issue included in this presentation and may, as principal or agent, sell such securities.

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