TRANSCRIPT: Chinese stock markets reach new records,
yet again, leading to more speculation on inflation,
PetroChina market capitalization soars, some interesting
IPOs in the works, and a mention of that start
of the 17th Communist Party Congress in Beijing...
Sinomania! Volume I Webisode 36, October 15, 2007
The Great Chinese Bull Market Continues
With New Record Highs in Hong Kong and Shanghai!
Party Bosses Congress in Beijing - can they plan
harmonious correction?
MARKETS GET HOTTER
The Shanghai Composite Index broke through 6,000
on October 15 to close at 6,030 continuing a steep
rise since just last week. The CSI 300 Index follows
somewhat less dramatically with a new record of
5,832.447 today. Shanghai Bs have exploded since
our last episode and closed October 15 at 387.183,
a new record. Conversely, ShenZhen Bs have taken
a nose dive and closed today at 759.606, the lowest
level since September 13, wiping out a month's
gain.
Who's up? PetroChina is up, up almost nine and
half percent today alone in New York to close
at $236.44 a share. Only two months ago PetroChina
was selling for $125. PetroChina shares trade
on the New York Stock Exchange as PTR, an ADR
or American Depository Receipt with a ratio of
1 ADR to 100 home country shares. Today's rise
helped make PetroChina the second most valuable
company in the world with a market capitalization
of $434 billion US dollars. Now Asia's biggest
corporation will challenge ExxonMobil for the
top spot.
PetroChina is a darling of investment houses
and although one well-known guru, Warren Buffet,
has decreased holdings, his Berkshire Hathaway
company remains the top six institutional holder.
Famous contrarian Mark Mobius, a Templeton manager
of emerging markets, is bullish on the stock and
increasing his exposure to it up to five percent.
In an interview in Hong Kong, Mobius said he was
bullish on energy stocks and believe they have
a "way to go" as long as oil prices rise.
Mark Mobius is the latest stock soothsayer singing
the virtues of the Hong Kong exchanges. He thinks
the Hang Seng Index at 30,000 is possible and
believes Hong Kong is the best value of all the
major equity markets with many Hong Kong companies
currently selling at a discount. Hong Kong overall
is selling at under 20 times profits while the
Shanghai Composite sells at 50 times profits.
But while the Hong Kong market may seem cheap
compared to Shanghai, the two are increasingly
symbiotic. The hottest stocks in Hong Kong are
Chinese H shares and Red Chips which now make
up over half of Hong Kong's market valuation.
And the big run up in Hong Kong shares is due
to speculation of when - not if - mainland Chinese
domestic retail investors are let in. I have no
news whether Chinese regulators will agree on
their positions and actually begin a coherent
program but many analysts believe it will be in
place by next year. JPMorgan is saying it could
lead to $60 billion US dollars worth of capital
flow into the Hong Kong market, so something to
think about and perhaps plan around over the next
year.
MONEY TROUBLE
Money is everywhere and the central government
appears unable to control the growth of China's
money supply with M2 money growing around 18.5
% in September and bank credit expanding over
17% - both figures well above targets despite
recent interest rate hikes and other efforts to
slow it down. China's central bank, the People's
Bank of China, is expected to raise the ratio
of required reserves to 13% a new high in an effort
to stop bank lending.
Most economists predict inflation will stay high
and become potentially very dangerous if it can't
be brought under control by second half 2008.
On the flipside, Renminbi appreciation should
accelerate faster. Morgan Stanley's forecast is
for the Yuan to trade at 7.30 to the US dollar
by year's end.
IPO REPORT
GobiMin, a mining company trading in Toronto
(TSXV:GMN) will IPO part of its subsidiary Xinjiang
Yakesi Resources on either Shanghai or Shenzhen
sometime next year. Money raised will be used
to further develop its nickel and copper deposits
and fund acquisitions. No further details at this
time.
Giant Interactive Group, holding company for
Z T game, has filed application for an IPO on
the New York Stock Exchange. Giant is the brainchild
of Shi Yuzhu, a young Chinese entrepreneur, and
his Z T Online was last year's most popular online
game in China. This is the first time a Chinese
technology startup is looking to the New York
Stock Exchange rather than NASDAQ. Estimates range
up to $400 million in proceeds if the IPO goes
through. Online gaming is big business in China
so this could be one to look out for.
Meanwhile, heavyweights China Mobile and PetroChina
are still eying A share listings as soon as possible.
17th PARTY CONGRESS CONVENES
Communist Party bosses are meeting all week in
Beijing in a closely watched but misunderstood
congress. The powers that be mainstream media
are quick to dismiss the party meeting with shallow
coverage and plenty of talk about jockeying for
position and scandals of meetings past. While
the party congress is an important part of the
Chinese political process it is not - as many
would have you believe - an end unto itself. Nothing
will be decided and the true course of policy
direction determined until affirmed at next year's
National People's Congress in March.
I'll have a full report on the party congress
and what clues it will give for opportunities
in China's growth and investment direction in
next week's show. Until then,
