TRANSCRIPT: A Report on the Chinese stock markets
and big new IPOs: New investment funds; Critique
of RateFinancials Warn on Chinese ADRs...
Sinomania! Volume I Webisode 32, September 19,
Massive New IPOs Rock Shanghai!
But is Resistance Building?
A Big Push for Private Equity…
And Is It Quantity over Quality with Chinese Stocks?
UP, UP, AND AWAY!
The Shanghai composite index is still above 5,000
and looks to stay that way for the immediate term.
The index hit a record high yesterday at 5,425.208,
down slightly today. The CSI 300 index looks much
the same with a new record high September 17 at
just under 5,500. B shares in Shanghai are way
up for the week but still below the level of the
end May peak. Shanghai Bs closed September 19
at 359.63. ShenZhen B shares mirror this performance
and closed today at 776.
Overall stock markets surged since yesterday's
interest rate cuts announced by the American Federal
Reserve. Helicopter Ben Bernanke will indeed drop
dollars on financial markets that in the words
of economics commentator Martin Wolfe have taken
the global economy hostage.
But there was no yang from the Chinese central
bank but yin as the People's Bank of China took
the opposite tactic and increased both the base
deposit and lending rates, the fifth rate hike
so far this year with more to come according to
Morgan Stanley's Qing Wang in Hong Kong. Chinese
central bankers are still trying to cool down
the economy and most importantly growth of China's
Resistance may be building in the Shanghai markets
according to some observers. Indeed my latest
rough support and resistance chart of the Shanghai
Composite shows lackluster potential above current
levels. Remember my call earlier this year was
for the index to be around 4,600 by 2008…
And new investment targets are finally on the
horizon giving cash rich Chinese a chance at diversification.
Four new industry investment funds were approved
by China's State Council and plan to raise cash
valued over $6 billion US dollars. They will operate
as a type of private equity fund and will support
businesses in four key areas and locations: Shanghai
for financial investments, Guangdong for atomic
power, Shanxi for coal, and Sichuan for high tech
industrial manufactures. And there is a fifth
fund, a joint China-Singapore fund also in high
The Chinese corporate bond market will get a
slight boost from China Yangtze Power, listed
as an A share, which plans to issue $4 billion
Yuan worth of 10 year fixed-rate bonds starting
The blockbuster IPO of the week is China Construction
Bank raising almost $8 billion US dollars (Y58.05
billion or approximately $7.7 billion US dollars)
and is now the biggest domestic IPO champ of the
year. The A share stock is expected to list in
Shanghai early next week and is already listed
on the Hong Kong exchange as an H share. Charlotte,
North Carolina, based Bank of America is a strategic
investor and owns over eight percent of China
Bank of Beijing also opened today and its share
price almost doubled.
Rounding out a very busy morning in Shanghai,
China Shenhua began accepting bids for its IPO.
China Shenhua is the largest coal company in China
accounting for about ten percent of the country's
production and the money raised could be used
for acquisitions overseas. The company's chairman
told the Financial Times he was interested in
buying mines in Indonesia and Australia as transportation
costs to China's booming southern coastline are
cheaper over sea than over land from northwestern
China. This is an interesting and potentially
important development affecting many areas of
investment in the mid to long term.
All three of these IPOs were mentioned in previous
episodes of this broadcast.
And the Boeing company has officially hitched
its wagon to China announcing with some fanfare
that its gravy train focus is the 3,400 new planes
Chinese airlines will need to buy over the next
20 years valued at $340 billion US dollars. Boeing
is claiming this market as its own despite intense
competition from Airbus and China's intent to
develop big body airplanes during the same time
period. Boeing shares - traded as BA on the New
York Stock Exchange - were up considerably on
the announcement and closed today at $100 dollars
and two cents a share.
QUANTITY OVER QUALITY?
Earlier this week a stock rating business called
Rate Financials said the major Chinese companies
listed on the New York Stock Exchange, such as
PetroChina, China Mobile, China Life Insurance,
and so on, which are among the top 50 most valuable
companies in the world and whose stock is held
by thousands including admired investors such
as Warren Buffet, have poor earnings quality and
poor disclosure and the exchange was criticized
for championing Chinese IPOs. Particular emphasis
was placed on the amount of shares still owned
by the Chinese government.
But there are numerous other big public companies
that are partly or even wholly owned by foreign
governments such as France and Russia to give
only two examples.
RateFinancials' methodology gives plus or minus
scores for such things as expensing stock options,
overoptimistic assumptions on future earnings,
low tax rates, discontinued operations, corporate
governance, inventory, free cash flow, and what
information is shared with stockholders.
But rating agencies have lost a lot of credibility
in the wake of the subprime panic and the rating
and ranking of securities remains a subjective
process despite all efforts to wrap them up with
I still believe the Chinese companies on the
New York Stock Exchange are an exciting chance
to ride the Chinese juggernaut.