In an equity market dominated by Apple Inc suppliers, investors are getting the biggest gains by going low tech.
Since a Chinese government crackdown on water pollution late last year that shuttered some paper mills, stocks of manufacturers including Taiwan’s Long Chen Paper Co (榮成紙業) and Paolung International Co (寶隆國際) have rallied and may see a bull run for years to come, investors said.
The trend is showing in Hong Kong as well, where Nine Dragons Paper Holdings Ltd (玖龍紙業) shares surged 28 percent last month.
Taiwan’s paper and pulp index has climbed 19.02 percent so far this year, compared with a 14 percent gain in the biggest 10 suppliers to Apple, including iPhone maker Hon Hai Precision Industry Co (鴻海精密).
Paper mills use vast amounts of water at the beginning of the process when wood is mixed into a slurry.
Smaller mills operating in China were shut down by the Chinese government in a series of moves aimed at curbing environmental waste, resulting in a reduction of supply and an increase in prices.
“It could be a multi-year bull market for paper stocks, spreading from Taiwan to Hong Kong,” said David Lu (呂大偉), senior vice president at Taipei-based Hua Nan Investment Trust Corp (華南永昌投信), which manages NT$50 billion (US$1.6 billion) of assets.
The surge in Taiwanese paper stocks began in late December last year, when Xinhua news agency reported that China was seeking to double fines on water pollution. Visits from Chinese government inspection teams disrupted supply, triggering a rally in the commodity’s price, Huatai Financial Holdings Ltd (華泰金融控股) analysts Gong Jie (龔劼) and Yu Liang (郁晾) wrote in a Jan. 24 note.
In addition, some paper packaging plants in Guangdong Province were forced to shut, according to industry portal Paper.com.cn.
The measures were part of a broader campaign announced in March last year by Chinese Premier Li Keqiang (李克強), after he listed improvements to the environment as a key target in the nation’s five-year plan.
Shares of Long Chen Paper fell 1.22 percent to NT$24.3 yesterday in Taipei and Paolung International dropped 7.39 percent to NT$26.3.
Long Chen Paper shares have risen 48.62 percent this year, compared with a 3.4 percent gain in the Bloomberg World Forest Products & Paper Index. Paolung shares have soared 52.91 percent.
Hon Hai shares, which fell 0.48 percent yesterday, have lost 0.59 percent this year after posting its first annual sales decline in the company’s history for last year.
“Paper stocks are only just starting to rise,” said Michael On (洪瑞泰), president of Taipei-based Beyond Asset Management (晉昂證券投顧).
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