Money

Investors cash in on trash

By LI XIANG (China Daily)
Updated: 2010-04-02 10:49

Workers spray chemicals at a rubbish dump in Wuhan, Hubei province. [China Daily]

Stocks surge on reports Warren Buffett shows interest in industry

BEIJING: Chinese investors are pocketing cash from trash as waste sector stocks surged on Thursday following reports that Warren Buffett had shown an interest in the industry.

Shares of Egurad Resources Development Co Ltd, a solid waste disposal service provider, hit the 10 percent daily trading limit to close at 20.78 yuan on Thursday. Waste incineration equipment producer Wuxi Huaguang Boiler Co Ltd also gained 9.99 percent to 21.90 yuan.

The surge on Thursday was largely boosted by reports that the US investment guru recently increased his holdings in Republic Services Group, an American waste disposal service provider by 128.7 percent at an average price of $27.71 per share.

Hedge funds that follow Buffett are also reportedly buying into the US waste sector. New York-based Bridger Management, with $4 billion in assets, has been buying positions in waste management companies including Casella Waste and Waste Connections.

Analysts said the Buffett effect has turned Chinese investors' attention to the domestic trash sector which is likely to see a business boom fueled by more government funding and favorable policies.

The Chinese government is gearing up funding for environmental protection as the country faces mounting trash problems while experiencing rapid economic growth. The country's total waste output has reached 180 million tons last year, expanding as fast as its economy, at about 8 to 10 percent a year. Beijing, with 17 million residents, generates 18,000 tons of waste every day, according to the municipal government.

It is expected that government funding for environmental protection will reach 3.1 trillion yuan during the 12th Five-Year Plan (2011-15), according to the National Development and Reform Commission.

The Ministry of Environmental Protection also forecast that the environmental protection industry is going to become a new economic driver, growing by 15 to 20 percent annually. By 2015, it will account for 7 percent of the country's total GDP, indicating golden days ahead for investors.

"Waste disposal and management has been a popular concept among investors along with the idea of a low-carbon economy in recent years," said Zhu Hongbo, an analyst at Shanghai Securities. "With more government funding and favorable policies coming out in the future, the sector holds value for long-term investment."

While experiencing rapid growth, Chinese waste service companies are also actively expanding into overseas markets. Beijing-based environmental company Sound Group, the parent of Eguard Resources, recently made a successful bid worth 560 million yuan for sewage treatment in Saudi Arabia. It was reported to be the first time a Chinese environmental company would provide waste management services outside of the country.

Zhu said waste-related companies are likely to see stable revenue growth with adequate capital flow as they are part of the public utility sector with the government being their major client.