High Inflation Hurts Coal Producers

Robert Hsu, July 21, 2008

Inflation has run rampant across the globe. Countries have been reporting record-high inflation figures all year long. And many countries have taken steps to try and curb these sky-high levels.

China has been raising interest rates and hiked bank reserve requirements numerous times in the past 18 months. This has helped drop the country's inflation rate from 8.5% in April to 7.1% in June. But this is still too high.

So the government is starting to take other action. In mid-June the government announced that it was going to start regulating coal prices in China. A move that is sure to hurt coal companies in the country.

That's why I recommended that my China Strategy readers sell Yanzhou Coal (NYSE: YZC). I added Yanzhou to the Buy List back in February as a way to take advantage of China's demand for the hard substance -- China is the world's largest producer and user of coal. It accounts for 61% of the country's power generation.

While the stock performed nicely at the beginning of the year, when the company's province, Shandong, placed a price freeze on coal sold to local State-Owned Enterprises (SOEs), the stock sold off. This was a bit overdone considering that Shandong only accounts for a small portion of YZC'z business.

But I still warned my readers that if more regions in China started to implement price controls in coal, we would sell YZC. And with the government's recent decision to regulate coal prices in the country as a way to control inflation, now is definitely the time to Yanzhou Coal.

Want more recommendations on stocks to drop from your portfolio? Then join China Strategy today!

Sponsored Links

What's happening in the world's major foreign markets right now? Will current events affect the stocks in your portfolio? Read InvestorPlace Asia's Top Stories to find out everything you need to know in order to stay on top of global economic news.

more...

Every country has its own special customs and traditions. Being familiar with a country's culture can often make a difference in whether you gain or lose from investing in its stock market. Check out our culture section to learn more about the societies of the world's fastest-growing emerging economies.

more...

There's a lot happening around the world today, and it's important to know how it's affecting your investments. Watch the latest videos covering important Asia topics!

more...