China A50 ETF purchased #2

With the PRC equity markets having under performed for some time, I added some more units in the China A50 ETF (HK:2823) to the privateportfolio this morning. I paid an average of HK$12.68 per unit. This compares with the HK$13.56 paid in October 2010 HK$13.56 paid in October 2010 .

While it has to be acknowledged that China is facing some economic issues with rising inflation squeezing business margins and monetary tightening, there are also some positive economic developments, including the continued expansion in domestic consumer demand, rising wealth levels and Western China playing catch up with the rest of the country. There is also the possibility that the restrictions on property investment may result in more money being invested in the share market.

Reviewing accruals

Like many people I make an accrual each month for expenses which are incurred at irregular intervals. This avoids wild swings in the budget in months were substantial payments fall due. It also ensures that I keep enough cash on hand.

Currently I have accruals for:

1. luxuries - usually some over-priced and over-hyped Bordeaux, but I also took my iPad from this accrual. Since this is wholly discretionary, I can say that the accrual is accurate - right up to the point where I overspend;

2. travel/holidays - this is a significant cost item. I have probably under provided for this and will add to this provision this month and slightly increase the monthly accrual going forward;

3. taxes - a necessary evil and the largest accrual by a considerable margin. After going through my estimated tax liability for 2010, I concluded that I have significantly over provided for my taxes;

4. home renovation project - our home will need redecoration at some stage and I started setting aside some money each month in 2009. The kitchen and bathrooms are now 11 years old and the last time it was painted was in 2005. It is likely that we will have to move into a serviced apartment for a couple of months while it is done. Whether this is over provided or under provided for will depend on when the renovation takes place. If this year, there will be a significant shortfall.

Accordingly, I will transfer some of the excess tax accrual to the travel accrual and the home renovation accrual and the balance of the excess is now available for investment - time to go shopping.

China Gas purchased #2

Following an announcement from the company providing an update on the investigation following the arrest of the managing director and executive president, I decided to buy more shares in China Gas (HK:384) this morning. Purchase price was HK$2.90 per share.

The announcement has provided sufficient clarity (IMHO) in that:

1. definitive action has been taken or is being taken against the two directors involved;

2. management appears to have a reasonable basis for stating that the maximum (i.e. worst case) loss is HK$178 million which is not material to the company;

3. they have used a "big 4" accounting firm to make an investigation and prepare a report and "they are satisfied with the findings so far";

4. they have provided a loose timetable for the report to be submitted after Chinese New Year;

5. there was confirmation that the company is operating "normally" and that 2010Q4 gross profit margin had improved.

The negatives:

6. it was not definitively confirmed that there were no additional issues;

7. there was no statement regarding appointing replacements for the arrested directors.

Although not as definitive as I, as a shareholder, would like it was a considerably better effort from the company's directors in addressing the issue than some other cases.

Combined with my earlier purchases in July 2009 at HK$1.96, my average purchase price is HK$2.49.