Q1 2010 Earnings Call

May 10, 2010 8:00 pm ET

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General Steel Holdings Inc (GSI) reported earnings of $0.11 per share for the first quarter of 2010 compared to earnings of $0.20 for the first quarter of 2009, on 43% higher revenues. The company posted a net loss of $5.5 million for 2010 compared to net income of $7.3 million for the same period a year ago.steel

According to GSI Chairman and Chief Executive Officer Henry Yu:

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I read an article on Sunday that questioned whether or not China would implode. I’m not too concerned with debating that article so much as discussing the long term prospects, or lack thereof, of China. In addition to the article in question there was an analyst of some sort on Asia Squawkbox who believes that the Shanghai Composite will bottom out a few hundred points lower than the current level.

The are concerns about the various growing pains and mistakes that have been made in managing the Chinese economy and whatever mistakes that will be made in the future. Hopefully, it is obvious that mistakes will be made in managing the Chinese economy just as in other economies.

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Industry wide, smartphone shipments were up 50% in the first quarter and as Apple’s (AAPL) astonishing first quarter results demonstrate, China is making its weight felt. iPhone sales in China were up 900%. China is also having an impact on the PC market. It is likely that close to 350 m PCs will be shipped this year, a 17% gain on 2009. As the recent results from Microsoft (MSFT) and Intel (INTC) illustrate, consumer demand in both China and other emerging markets has more pull than Western corporate buyers. Yet it will serve investors well to remember an old stock market adage: news follows share prices.

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China saw exports rise 30.5% year on year in April to $119.9 billion and imports up 49.7% to $118.24 billion, leaving a trade surplus this month of $1.68 billion compared to a deficit last month of -$7.24 billion. Consensus estimates were for a deficit of -$0.55 billion.

The rise in imports, though much of it driven by increasing commodity prices, is a positive sign for global trade and economic activity as China increasingly becomes a driver of world economic growth.

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Chinese online game stocks plunged last week as market indexes plummeted amid macroeconomic concerns: The CWD China Online Game Stock Index (see chart 1) dropped 8.8% last week, while the S&P and NASDAQ Composite Indexes dropped 6.4% and 7.9%, respectively. I note that the performance gap between China online game stocks and the NASDAQ Compsite index since 2009 has been shrinking in the past several months (see chart 1, below).

Chart 1: CWD China Online Game Stock Index vs. NASDAQ Composite

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Mobile/ Wireless

• Mobile content services firm Nano Media reported full-year results for the period ending March 2010. The company’s sales declined by 4.3% to 2.54 billion yen (US$27.7 million) while net loss reduced to 98 million yen (US$1.06 million) from 1.08 billion yen (US$11.78 million) the previous year.

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One of the reasons why investors lost money on the Greek bonds has to do with the promoter of the issue. Greek bonds were obviously sold by the Greek government whose incentives are not just those of profit and loss. The Greek government does not have to worry about balancing its books, because in theory it has the power to tax people in sufficient amounts to pay off debtors. But that is exactly the problem. The Greek government is loath to enforce taxes against its tax dodging citizens to benefit creditors, for the very solid reason that if it does so, soon there will be a different Greek government. Since Greece is a sovereign state, unlike a normal debtor it cannot go out of business nor can it restructure in bankruptcy. Worse– as a member of the European Union and the eurozone, there is the moral hazard that its financial profligacy will not fall on its own taxpayers, but the taxpayers of other countries.

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The video clips below provide a handy summary of the reports expected on the economic, financial and corporate front around the globe during the week ahead.

US: A slew of data, and earnings

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It’s the world’s biggest and fastest-growing economic powerhouse, the subject of countless daily discussions and conjectures in the news media and an endless source of controversy, fear and confusion among investors, businessmen, politicians, bankers and bureaucrats. For those who follow the global economic outlook, it’s probably the single-most important focus in trying to solve the global financial crisis. And answers to the questions surrounding this country’s near-term future will undoubtedly have a momentous impact on your own financial future. It’s also the subject of our commentary today: The China outlook.

If you’re like me, you’ve followed the China musings of many analysts and commentators over the years and you’ve probably been perplexed at how there can be so much disparity among what these analysts are claiming about China’s financial and economic outlook. It would seem that the China observers are evenly divided into two camps: those embracing a bullish "the sky is the limit" outlook and those who say that China is merely a "paper tiger" just waiting to burn. Their statements are often diametrically opposed on the issues under discussion, leading one to ask, "How can so many China observers be so completely at odds with each other over a country so vast and important to the global economy?"

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