The Summer Olympics are only days away and what the Chinese had hoped would be their coming out party to celebrate all that is good, may instead become quite the opposite.
The air pollution in Beijing is so bad that even reducing automobile traffic by 50% has not helped much. China is now considering a 90% reduction according to news reports. Athletes are staying in other countries until the games begin so that they may train somewhere they can breathe. There are also reports that many athletes involved in stamina events will be forced to wear masks to protect themselves from the particulates in the air.
Now Reuters is reporting that "Some International Olympic Committee officials cut a deal to let China block sensitive websites despite promises of unrestricted access, a senior IOC official admitted on Wednesday."
So the world media will not be able to do their jobs in a manner they are accustomed to. But who are we actually referring to? Western media, of course, because half the world still limits access to information to some degree.
"Growth investors can hitch their portfolio to any number of Asian stars; I think one big winner is going to be China Mobile (NYSE: CHL)," says Tony Sagami in his specialized Asia Stock Alert.
"Mobile phones are much, much more than telephones to Asians. If you travel to Asia, one of the first things you'll notice is how most locals walking down the street have mobile phones glued to their ears.
"It would be a big mistake to think of China Mobile as simply a mobile phone provider. In addition to traditional calling services, the company offers value-added services such as voice mail, conference calling, instant messaging, text messaging, as well as accessing the Internet.
"Even though the price of computers has fallen dramatically in the last few years, a personal computer (PC) is still out of financial reach for the average Chinese. Meanwhile, mobile phones are both cheap and capable of many of the same functions as PCs.
"Look, $500 to $1,000 dollars for a PC may seem reasonable to you and me, but that is a small fortune for the typical Chinese consumer, who makes less than $3,000 a year.
MOST NOTEWORTHY: Varian, Chipotle Mexican Grill and McDonald's were today's noteworthy downgrades:
Thomas Weisel downgraded shares of Varian (NASDAQ:VARI) to Market Weight from Overweight following the company's Q3 results to reflect manufacturing relocation issues and the slowdown in organic growth. The firm lowered their target to $47 from $70.
Jefferies cut Chipotle Mexican Grill (NYSE:CMG) to Hold from Buy following the company's in-line Q2 results, as they believe consumer headwinds and commodity inflation are likely to pressure EPS in coming quarters. The firm lowered their target to $80 from $100.
Deutsche Bank downgraded McDonald's (NYSE:MCD) to Hold from Buy as they believe higher beef costs and slower traffic could drive reduced profitability and limit upside. The firm reduced their target to $63 from $67.
OTHER DOWNGRADES:
AT&T (NYSE:T) was lowered to Neutral from Overweight at JP Morgan.
China is the world's largest cellular phone market. Without it, Apple's (NASDAQ:AAPL) quest to grow iPhone sales quickly would be hindered.
Apparently, however, Apple is now getting close to a deal.
According toReuters, "Apple is no longer insisting on a revenue-sharing policy, so the biggest hurdle for China Mobile to bring in the iPhone has been cleared, but there are practical issues still to be resolved," said China Mobile (NYSE:CHL) spokeswoman Rainie Lei. Apple will not get a piece of the subscription fees attached to the phone, but it will move into a position to sell millions of iPhones on the mainland.
The news is likely to push Apple's stock up. China sales could eventually equal all of Europe's sales combined and may, at some point, rival sales in the US.
Apple's biggest problem in China may be the price of the phone. The upper and middle classes there may well pay for an expensive smartphone. The less well-off are likely to stick to products that cost well below what would be $100 in the US.
But Apple does not need to sell iPhone to all 1.3 billion people in China. It would probably be happy if just half those people bought the new 3G product.
Douglas A. McIntyre is an editor at 247wallst.com.
Deutsche Bank cut Anheuser-Busch Companies Inc (NYSE: BUD) to Hold from Buy on valuation following the recent rally spurred by takeover speculation. The firm believes the reported $65/share cash takeover offer by Inbev requires aggressive cost reduction and could harm the brands.
Morgan Stanley downgraded shares of GlaxoSmithKline Plc (NYSE: GSK) to Underweight from Equal Weight as they see risk to Street expectations for a U.S. Cervarix approval in 2009.
As China continues its massive economic expansion, the country is in a continuous state of flux. According to the New York Times, China has requested its six telecommunication firms to consolidate their assets, effectively paving the way for fixed-line operators to get into the mobile arena.
According to the same Times article, "the parent of China Telecom will buy a mobile phone network from the parent of China Unicom (NYSE: CHU), which in turn will merge with the company that controls the China Netcom Group (NYSE: CN) ... China will issue three third-generation wireless licenses after the overhaul is completed."
The big short-term loser of this directive appears to be China Mobile (NYSE: CHL). The stock was down about 7% Monday off the news. The firm's stronghold on the mobile telecom market in China is now effectively weakened as China Telecom and Netcom can gear up to compete against China Mobile.
Why should this interest investors? Again, according to the Times, China had almost 600 million mobile phone users at the end of April, exceeding the combined populations of the United States and Japan. In the world's largest mobile market in terms of users, the $100 billion market is poised to ramp up given that just over half of all Chinese own mobile phones and a lot less than that have Internet connections.
Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC., the managing editor of IsraelNewsletter.com an d a former equity analyst for a leading multinational hedge fund.
In a reorganization of China's telecom industry, which will change the face of the wireless industry, the country plans to merge two of its largest mobile companies, China Netcom (NYSE: CN) and China Unicom (NYSE: CHU). The new firm will be issued on of the three high-speed wireless licenses that the government plans to grant.
China's two largest phone companies, China Mobile (NYSE: CHL) and China Telecom, will receive the other two contracts.
The news may also be a benefit to handset makers as they rush to offer products for the new 3G networks. Apple (NASDAQ: AAPL) has still not found a home for the iPhone in China.
More competition among carriers will give it a greater chance to strike a good deal. A new market could also give some aid to Motorola's flagging handset sales and to rivals Samsung and Sony Ericsson.
Douglas A. McIntyre is an editor at 247wallst.com.
"The Olympics have long been a boon to stock markets of host countries," notes Tony Sagami, a leading global stock advisor with a noted specialty in Asian markets.
In his Asia Stock Alert newsletter, he notes, "I believe the chief beneficiaries of the Olympic Games will be consumer and travel-related stocks. And within these sectors, I've chosen six stocks poised to bring home Olympic gold from Beijing."
"We saw a 19% gain in the Spanish stock market in the 12 months before the 1992 Barcelona Olympics, and the 27% gain in the Greek stock market in the year before the 2004 Athens Olympics. And those countries were not growing at a fraction of the breakneck pace that China is. So it wouldn't surprise me to see the Chinese stock market do even better.
"It seems like every person I see in China has a cell phone glued to their ear. And the cell phone is not just the primary voice communication medium in China; it is also the common way most Chinese access the Internet and email. In China, the cell phone 'is' the personal computer.
"Heck, most new high-rise condominium and apartment complexes being built in China aren't even wired for land lines. Once you understand the device's role, you'll see why China Mobile has more cell phone users (360 million) than the U.S. has people. I expect a lot of cell phone calls and text messages during the Beijing Olympics!
MOST NOTEWORTHY: Vodafone, AstraZeneca and Forest Oil were today's noteworthy upgrades:
Bear Stearns upgraded shares of Vodafone (NYSE: VOD) to Outperform from Peer Perform on valuation, as they believe the stock trades at a discount to peers.
AstraZeneca (NYSE: AZN) was raised to Buy from Hold at Citigroup to reflect the potential for higher sales of the company's Crestor cholesterol pill.
Jefferies upgraded shares of Forest Oil (NYSE: FST) to Buy from Hold and raised their target to $63 from $50 following the company's "bullish" analyst conference.
OTHER UPGRADES:
Pharmasset (NASDAQ: VRUS) was raised to Buy from Neutral at UBS.
Deutsche Bank upgraded China Mobile (NYSE: CHL) to Buy from Hold.
Morgan Keegan upgraded RadNet (NASDAQ: RDNT) to Outperform from Market Perform.
Deutsche Bank upgraded China Mobile (NYSE: CHL) to "buy" from "hold," according toBriefing.com. The financial site also reports that JP Morgan downgraded Crocs (NASDAQ: CROX) from "overweight" to "neutral."
Douglas A. McIntyre is an editor at 247wallst.com.
The Nikkei was off 3.3% to 12,433. Honda (NYSE: HMC) was off 4.2% to 2940 yen. Mazda was off 5.8% to 377.
The Hang Seng was down 4.1% to 22,458. China Life (NYSE: LFC) was down 4.9% to 28.05 yuan. China Mobile (NYSE: CHL) was down 4.5% to 107.7. PetroChina (NYSE: PTR) was off 6.6% to 10.22.
The Summer Olympics are only days away and what the Chinese had hoped would be their coming out party to celebrate all that is good, may instead become quite the opposite.
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