On Monday last week, I was invited to the listing ceremony of Dongfang Modern Agriculture [ASX:DFM] at the Australian Securities Exchange (ASX) in Sydney.
‘In a moment, we will have a countdown as per custom. Feel free to join us,’ said an ASX spokesman.
A crowd was standing on the Exchange floor, precisely one minute before 10am. With just 20 seconds until market open, everybody got their phones out to take a photo…myself included. You can see some of the crowd in my photo below.
Then the countdown started…
10, 9, 8, 7… 3, 2, 1 — ding, ding ding! Dongfang Modern’s CEO, standing at the front of the crowd, rang a bell.
This was my first time witnessing a listing. However, this isn’t too special for veterans like Richard Li, the executive chairman of GoConnect [ASX:GCN]. He has taken a number of companies public in his career, and he plans to continue doing this in the future.
But the listing of Dongfang Modern was a special occasion. It’s the first privately-owned Chinese agriculture company to list on the ASX in over 20 years.
You may ask why that is so special.
You need to put this listing into perspective. Think about the free trade deal with China. And the ‘rebalancing’ the Reserve Bank of Australia (RBA) has been talking about. What could this mean for agriculture in Australia?
Things are changing on the ground, and as an investor you need to be aware of it.
The free trade deal with China will mean more exports of competitive Australian agricultural products to China, the world’s largest market. And Dongfang Modern’s listing in Australia has its strategic considerations. They mean to tap into the liquidity of the Australian market, with a particular focus on Chinese agriculture and Chinese consumers.
The RBA has said that the Australian economy has been ‘rebalancing’ well. They mean that there has been a shift from mining-focussed investments to other investments…such as agriculture.
For Australia, this means a few things. Agriculture will be hot as capital shifts to sectors that will benefit from the free trade deal and China’s rising consumer wealth.
It also means more Chinese agricultural companies will follow suit. They want to list in Australia. They want to tap into the capital market here.
Another point worth thinking about is the fact that Dongfang Modern, and other companies under people like Richard Li, are privately-owned — as opposed to state-owned.
We are seeing the flourishing of private capital in all sectors in China, but particularly in agriculture.
It really comes down to culture
In my conversations with the management, brokers and other veteran investors at the event, there was a clear demand for more cross-cultural understanding.
Don’t take this point lightly. This is what it really comes down to.
For Chinese companies such as Dongfang and GoConnect to be discovered, they need a wider range of brokers, investment banks and institutional investors to understand the Chinese scene.
At the same time, it is really the company’s own responsibility to make research, promotional materials and contacts more widely available. And in English!
Mr Li told me that a lack of understanding of the Australian market, culture, language, and financial system often undermined the success of Chinese companies in Australia. That’s a common problem with Chinese companies listed in other parts of the world too.
And I know exactly what Li is talking about…
Chinese culture is quite conservative, and to an extent arrogant. It is not arrogant in the sense that it shamelessly pushes its culture outward. Quite the contrary. There is the lack of effort to make connections with the broader global community.
In Western systems such as Australia, Chinese companies need to put in a lot more effort. They need to make their materials available in English and promote themselves within the Australian capital market.
Just like Chinese Premier Xi Jinping’s visit to the US and Britain. They need to establish understanding between cultures and break down those barriers.
The perfect time
Now is the perfect time to buy into emerging market stocks. Why? Because we are going through a bottoming process for emerging markets, and a sustained rally will soon be here.
The stocks on the New Frontier Investor buy list have rebounded by an average 5% over the last four weeks. For a number of stocks, the rebound was between 10–20%.
And that rebound looks to be only the beginning. Using analysis based on average target prices in the market, most of the stocks I’ve recommended look set see more strong gains. Some should gain 5–15%, while a few should rebound 44–57%.
Emerging Markets Analyst, New Frontier Investor