On a day when many telecom stocks were hit with downgrades, China Mobile Limited (NYSE: CHL) distinguished itself this morning by scoring an upgrade. Goldman Sachs raised its rating on CHL from "sell" to "neutral," while simultaneously trimming the stock's price target from HK$95 to HK$90. The price-target cut echoes a similar move made by Citigroup on Sunday; the brokerage firm cut its target on CHL from HK$120 to HK$100.
In response to today's mixed analyst comment, CHL is down more than 7% at midday. The equity has shed about 42% year-to-date, and its lengthy decline could prompt additional price-target cuts during the short term. According to Thomson Financial, China Mobile shares are trading about 60% south of their average 12-month price target of USD $81.01.
Today's upgrade from Goldman comes as CHL is approaching former support at the $44 level. This region buoyed the stock in early 2007 and earlier this month, which suggests that it could once again provide a floor for the shares. Unfortunately, though, the stock is also looking up at stiff technical resistance from its 10-week moving average, which means China Mobile might find itself bouncing sideways in the weeks to come. Or -- even more troubling -- a continued drop in the share price could spark an unwinding of widespread optimistic sentiment.
Apple, Inc.'s (NASDAQ: AAPL) iPhone 3G continues to sell like gangbusters even with multiple issues and some furious customers. But, if Apple really is bent on selling over 10 million of the now-iconic, do-everything handset, it may need to beef up its sales as best it can. Enter China Mobile.
That's right -- the wireless company that has more subscribers than there are U.S. citizens may be selling the iPhone 3G soon, according to reports. And we're not talking gray market handsets, but an actual partnership between Apple and China Mobile. Talks between the two companies, according to the 21st Century Business Herald, are in "final stages."
China Mobile CEO Wang Jianzhou stated this week at the ITU Telecom Asia 2008 exhibition in Bangkok that "Steve Jobs and I hope the iPhone will enter China as soon as possible ... we are discussing this issue, but we do not have an agreement." If Apple can get its do-everything handset into China Mobile, we've not seen anything yet in terms of iPhone 3G sales.
IPod sales may be on the decline in the near future -- but can the iPhone 3G make up for that? We'll see.
"Whenever anyone asks, 'Why invest in China?' the answer is very simple: that's where the money is, and it's where exponential future economic growth is also," says Jim Trippon.
The editor of The China Stock Digest then asks, "Will China suffers an Oympic hangover?" Here, he explains why that should not happen and offers a look at China Mobile (NYSE: CHL), which he calls the "top dog" in the Chinese wireless sector.
"The Bank of China (BOC) conducted a study of the effects of 12 Olympiads on their host countries over the course of 60 years. They found that nine of the twelve Olympic host countries suffered a decline in GDP growth in the eight years after the games.
"The key to a post Olympic slump is the size of the economy. Smaller economies like Korea suffered larger downturns after the games, while larger economies like the United States were not affected at all. In smaller economies the enormous investment dedicated to staging Olympic games created an artiļ¬cial bubble which was followed by a slump when Olympic building booms came to an end.
"China has made one of the largest investments ever in the Olympic Games with some estimates of spending topping $40 billion. But we don't believe the capital city will go into a slump after the games.
"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.
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.
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.
The Wall Street Journal reported that analysts are looking to assess the significance of a new accounting problem at American International Group Inc (NYSE: AIG) which includes "material weakness" the company's auditor found that relates to subprime exposure.
China Mobile Limited (NYSE: CHL) is expected to announce its support today for Long Term Evolution, a wireless broadband standard gaining strong momentum as the next-generation wireless technology for providing super-fast web surfing on cellular phones, the Financial Times reported.
OTHER PAPERS:
According to the Associated Press, Petroleos de Venezuela SA said it has stopped selling crude oil to Exxon Mobil Corporation (NYSE: XOM). The decision, made "as an act of reciprocity" for Exxon's "judicial-economic harassment," will also include the suspension of commercial relations with the U.S. company.
WEB SITES:
Reuters reported that The Walt Disney Company (NYSE: DIS) signed a deal to buy 20% of Net TV, a digital television company controlled by Spanish media company Vocento.
"Our latest buy is Matthews Asian Technology Fund (MATFX), which has been added to our Global Core and Asia-Pacific Portfolios. While there's plenty of uncertainty in global markets at the outset of 2008, the tech sector and Asia's economies both look well-positioned to weather the storm.
"The Matthews Asian Technology Fund gives you the best of both worlds. With $245 million in assets, the fund has delivered annualized returns in excess of 25% over the past five years. It invests in a mixture of both large-cap and small-cap companies, with varying degrees of exposure to 'technology.'
"Some holdings, like Chinese search engine Baidu.com and the Japanese social networking site Mixi, are pure technology plays, whereas Korea's Samsung Electronics and Japan's Sony fall into the more mature camp of consumer electronics.
"Telecom is also among the fund's biggest holdings, with China Mobile and India's Bharti Airtel among the top 10 holdings. That means the fund won't always deliver eye-popping returns, but it offers a bit more protection on the downside."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
China is beginning to admit that slow growth in the U.S. would be a significant enough drag to badly damage its exports and hurt its economy. "If U.S. consumption really comes down, that's bad news for us. That will have a pretty severe impact on our exports," Zhang Tao, deputy head of the international department of the People's Bank of China, told a group including Reuters.
Any slowdown is likely to hit the Chinese stock markets hard. Despite a recent pullback, the Hang Seng Index is up over 60% in the last two years while the S&P has barely risen. The Shanghai Composite is up over 300% during that period.
Downward pressure on China shares could affect many stocks listed in the U.S. Among the most vulnerable are probably those that have risen the fastest. That would include Baidu (NASDAQ: BIDU), which is up about 130% in the last year, and China Mobile (NYSE: CHL), which is up over 70%.
If a U.S. recession hits China, the markets there may have seen their best days.
According to the Wall Street Journal's "Heard on the Street," bears believe it may be too early to bargain hunt among financial stocks, as they think there may be more bad news to come after Citigroup Incorporated (NYSE: C) announced it took an $18B write down in Q4.
MiningMx.com reported that BHP Billiton has reached an "impasse" with South Africa's government over the conversion of the company's exploration leases to new order mining rights.
According to management at the world's largest cellular carrier, China Mobile (NYSE: CHL), talks to sell the Apple (NASDAQ: AAPL) iPhone have ended. Reuters reports, "News that the two telecom giants were in talks over the device's potential launch in the world's largest telecoms arena helped Apple's stock climb more than 10 percent on November 13."
It would be easy to say that the iPhone will not be in China soon because Apple wants revenue-sharing agreements that the Chinese think are too one-sided in Apple's favor. Or, the phone's $500 price is too high for an emerging market. China does have a large middle class, so that excuse may be thin.
What is probably more accurate is that China Mobile does not need the iPhone and can afford to walk away from a partnership. Unlike cellular carriers in the U.S. and Europe that are facing market saturation, China Mobile has over 350 million subscribers. But that is not a large number compared with the country's overall population. It does not need one "hot" phone to keep growing.
Douglas A. McIntyre is an editor at 247wallst.com.
For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"My favorite conservative idea for 2008 is China Mobile (NYSE: CHL)," says Tony Sagami, editor of The Asia Stock Alert. "Because of instant delivery and low cost, text messaging has rapidly become a wildly popular means of communication among young people.
"Text messaging over SMS (Short Messaging System) wireless systems is very popular in America. But one country sends more text messages than anybody else in the world: China.
"One out of every two SMS text messages sent in the world are sent in China. Typically, the cost of a text message in China costs about 10 fen (or 1 cent), so we're talking about a mountain of money. Indeed, in China mobile phone users are expected to send over 1 trillion text messages by the end of this decade.
"For investors, that gargantuan growth spells opportunity. And in China, the company poised to serve and profit from this trend is China Mobile, the largest wireless phone company in the world with 356 million subscribers and a dominant share of the rapidly growing Chinese wireless market.
Google (NASDAQ: GOOG) is not making the kind of headway it would like to in China. It still runs far behind local search engine Baidu (NASDAQ: BIDU) in market share. Reuters thinks it has the road-map for the US company and it involves Google "linking up with local partners, navigating draconian regulations and understanding Chinese tastes."
Easily said.
Google is not allowed to bring in its Google News product and use it to any effect due to censorship regulations. In the meantime, Baidu has been allowed to start its own news service. Local copyright rules do not allow the US company to offer its free music search function.
Companies like China Mobile (NYSE: CHL) are controlled by government regulators and the large cellular provider can pick which search functions it allows on its handsets. It can also set fees for software providers like Google and set them very high.
Reuters points out that the Microsoft (NASDAQ: MSFT) MSN product in China is part of a joint venture that is run by the son of a former Chinese president.
All of this seems a bit sordid, and perhaps it is. Google, however, has to decide if it is willing to go to extraordinary lengths to move into the big market, or keep some of its dignity and take what market share it can get through normal business practices.
Douglas A. McIntyre is an editor at 247wallst.com.
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According to management at the world's largest cellular carrier, 
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