TRANSCRIPT: China Stock Markets Get Higher But
For How Much Longer and an IPO Update...
Sinomania! Volume I Webisode 29, August 22, 2007
China's Markets Levitate!
But A Surprise Rate Hike May Bring Them Back to
And an IPO Update!
MARKETS LEVITATE BUT HOW HIGH WILL THEY GO?
Chinese stocks continue an upward trend confounding
critics and traders alike with their robust performance.
Markets in Hong Kong are breaking new records
all summer. The Hang Seng index ended August 22
at 22,346.88 after a dramatic gain last Friday.
The benchmark Shanghai Composite index closed
August 22nd at 4,980.075 after a yo-yo run that
saw the index fall sharply in the first half hour
of trading then briefly touch just a hair under
5,000 at the end of the day. The CSI 300 index
crossed the 5,000 mark this week and closed at
Again B shares are the odd man out closing August
22 at 314.295. Shanghai B shares have lost significant
ground since only last week and remain a long
way from their peak on May 28. Indeed it now appears
obvious that Shanghai B shares are the one class
impacted by the tripling of the stamp duty on
trading transactions May 30.
Were B shares in Shanghai manipulated by "day-traders"?
Of course intra-day and true day-trading are not
possible in Chinese stock markets under current
rules. But there are plenty who make money or
try hard to by capitalizing on the end of day
close and open prices on the Shanghai B share
market. This behavior is less evident with ShenZhen
B shares but the pattern appears to be there also.
So has the fun gone out of B shares? Perhaps
for now but there is plenty of promise left in
Chinese B shares. In fact, we may be seeing a
new environment develop for these shares as short-term
investors lose interest. Fact is many B shares
are from the best Chinese companies with the greatest
long-term potential. For foreign investors really
bullish about the future of China, B shares are
a chance to own a piece of Chinese companies and
be part of this most exciting early stage of Chinese
equity development. I'll have more on B shares
at another time.
Chinese stock markets may be surprising with
their resilience but many analysts continue to
expect a drop in prices and still hold out for
a ten to even 20 percent "correction" if credit
conditions tighten in the second half. The unexpected
interest rate hike by China's central bank on
Tuesday may be signal of market volatility to
come of uncertain duration.
The People's Bank of China announced its fourth
rate increase of the year August 21 raising the
interest rate on bank deposits to 3.6 percent
and the lending rate to 7.02 percent. The move
is part of broader effort to control bank lending
and growth of the money supply. July inflation
was running at 5.6 percent and M2 money supply
figures were up 18 and a half percent. The key
word the central bankers used was "stabilize"
and many expect there to be more rate increases
in the second half. The end result is a credit
squeeze keeping China on par with the rest of
the world's big economies.
Financials continue to cash in with several IPOs
Bank of Beijing is planning a Shanghai domestic
IPO this year to be followed by a H Share listing
on Hong Kong sometime later. The amount of the
offering is not known at this time. Bank of Beijing
is 19.9 percent owned by Dutch conglomerate ING.
Commonwealth Bank of Australia is the owner of
the maximum possible foreign stake in Hangzhou
City Commercial Bank which plans a 5 billion Yuan
A share listing on Shanghai. The application is
currently under review by Chinese regulators.
An IPO in the hot and fast growing tourism sector
is Songshan Shaolin Tourism Group expected to
go public in 2008. The company manages the tourist
resources around the Shaolin Temple in Henan Province
where Kung Fu originated. There are numerous Buddhist
temples in the region and 60 Kung Fu schools attracting
up to four million tourists last year. The IPO
may be on domestic markets or in Hong Kong.
And remember Nineyou International the Chinese
online game provider set to IPO in Osaka, Japan?
As we mentioned earlier the IPO was troubled with
a lawsuit from T3 Entertainment, the Korean creator
of one of its primary online game properties.
Nineyou will now counter sue and has withdrawn
its IPO indefinitely.