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Volume I, Episode 38
November 2, 2007
Oil Shock! Price Problems At the Chinese Pump - Stocks: Where's the Correction? - more
Sinomania.TV

October 24, 2007

SPECIAL REPORT: 17th Party Congress - Shanghai Bubbles? - Market Numbers
October 15, 2007

China Bull Run Gets New Highs - PetroChina - IPOs - Money - more

October 9, 2007

Chinese Stocks Up & Up - IPOs - Iron & Steel - Pacific Pipeline - more

October 4, 2007

Hong Kong Booms - Commodities, Inflation, Oil at $100 a barrel? - more

September 25, 2007

UAW Tells GM No Jobs For China - Markets Hit 5,500 - China's Auto Industry - IPOs

September 19, 2007

New IPOs Rock Shanghai! But is Resistance Building? A Big Push for Private Equity…

September 10, 2007

Report on APEC 2007 - Energy Security - Markets Update - IPOs in Hong Kong

August 30, 2007

Chinese Stocks Stay Up - Big Bond Sale - IPOs - Upcoming Party Congress

August 22, 2007

China Stock Markets Get Higher But For How Much Longer? - Surprise Rate Hike - IPO Update

August 14, 2007

China Toy Recall - Markets & IPOs - Western Banks Catch Asian Flu?

August 6, 2007

Shanghai Composite Busts Past 4,600 - Beijing Bets on Banks - Chinese IPOs in Japan

July 31, 2007

China Stocks Up Again & Again! - Pussyfooting Around Currency? - Democracy in Japan?!

July 25, 2007

Will Barclay's Turn Chinese? 2Q/H1 Macro Report + IPOs!

July 19, 2007

Food Fight! China-USA sling hash / Peak Oil? / Markets Flat Line...

July 10, 2007

Chinese markets confused? Big IPOs - Chery+Chrysler

June 27, 2007

COSCO - China Mobile - IPOs - Telecom Mergers & Acquisitions

June 21, 2007

New Record Highs in Hong Kong, Shanghai: Will Beijing Put On the Squeeze? - IPOs & more

June 15, 2007

Fundamental Misalignment: US-China currency war - stock markets up & IPOs

June 7, 2007

China Stock Pop - Hot News items - climate change, tainted food...

May 31, 2007

Chinese stock markets hiccup - IPOs - USA-China Trade Gap

May 25, 2007

Report on the 2nd USA/China Strategic Economic Dialogue: Win-Win or When-When? - Market numbers - New IPOs


May 18, 2007

New life for Hong Kong? IPO Update - USA/China summit


May 11, 2007

Will Shanghai end up like NASDAQ or Nikkei? - IPOs


April 30, 2007

Tulips to Dotcom - is Sino Mania the next big bubble?


April 20, 2007

The Heat is on! - IPO Report - Air Pollution in China


April 15, 2007

China markets, IPO update, Beijing Ready for Olympics?


March 30, 2007

China markets up, up, up! Sinomania! goes to China


March 23, 2007

Focus on National People's Congress... Hi-Tech, IPOs


March 17, 2007

China's new investment strategy, IPOs, the Wrap...


March 7, 2007

China syndrome or hong bao bounce? New IPOs... more!


February 27, 2007

China Stock Market Yo-Yo, new IPO issues, the wrap


February 17, 2007

Chinese New Year edition! Will China buy Chrysler & more!


February 9, 2007

The USA-China WTO trade dispute and New IPOs


February 1, 2007

IPOs: New Red Chip — Bubble Burst? — USA-China


January 26, 2007

BUBBLE TROUBLE? — IPOs on NASDAQ — Renminbi Yuan


January 20, 2007

IPOs in 3 hot sectors — BAOSteel — Macro Report


China MARKETS » China WEATHER »
HKEX Hang Seng Shanghai
SSE Shanghai Hong Kong
SZEX Shenzhen Beijing
MUSIC in China: Listen!
 

TRANSCRIPT: Oil shock in China with supply and price issues troubling Chinese oil majors; speculation continues to mount on whether or when the bubble in China equities will burst; and PetroChina's A share IPO...
Sinomania! Volume I Webisode 38, November 2, 2007

Oil Shock — Gas Lines In Beijing!
Markets and a Big IPO!

ENERGY INSECURITY?

Gas lines appeared in Shanghai and Beijing for the first time in two years finally capturing the attention of China's national politicians. Angry lines of truck drivers got vocal and in one reported instance violent about the shortages and rationing of fuel all over coastal and starting this week interior regions of China. The disruption was spiking inflation in Shanghai and causing embarrassment in the lead up to next summer's Olympics in Beijing. On Wednesday Chinese refiners were allowed by China's top leaders to raise prices for refined oil products ten percent overnight.

China's oil shock was not due to any embargo or disaster to the oil industry but to a deliberate shortage created by the big Chinese refiners the holding companies for Chinese oil retailers Sinopec and PetroChina whose stock is owned by people around the world but still largely controlled by the Chinese Communist Party. PetroChina in fact is poised to overtake ExxonMobile soon as the world's biggest corporation. The day before the National Development and Reform Commission (an agency of China's State Council) gave the green light for the price increase a Sinopec executive told the Reuters newsgroup that it was closing down a major refinery an action that would create a national shortage.

Even with the price rise vehicle fuel in China is still less than the current average per gallon cost in the United States and far less than the price per liter in Europe. The reason Chinese refiners slowed output was to stem losses from the new rise in crude oil now hovering just under $100 a barrel. They cannot pass on full costs to consumers because of government price controls and so will again be subsidized by a cash infusion from Beijing.

Only two years ago the National Development and Reform Commission warned that China's refining capacity was insufficient. Several huge oil refinery projects are planned in China but they are years away from production. Ironically, only ten years ago China had excess refining capacity as the oil and gas industry was spread around the country with many locally owned small capacity refineries, a legacy of the Mao era. But those small and fragmented companies were forced out of business or sold off to create the big Chinese energy conglomerates. They are now aggressively consolidating and exerting new influence on the government.

MORE BUBBLE TALK

After a steady rise all week the Shanghai Composite Index dropped down to settle just above 5,777 at the Friday close. As I've mentioned before the index appears reluctant to stray far from 5,500. The CSI 300 Index - still the world's star champ for the year - dropped over two and third percent November 2nd to close at 5,472.93. Like the Shanghai Composite it seems mesmerized by the 5,500 line. After a big plunge at the end of last week Shanghai Bs recovered somewhat but are back down today to close at 370.408. ShenZhen Bs recovered nicely from last week's slide but ended down November 2nd at 784.174. The Hang Seng Index remains above 30,000 and closed today 30,468.34.

There are now about eight weeks left to 2007 and it seems almost everyone with an opinion on Chinese and Asian markets is blowing bubbles. Once again no longer questioning whether asset prices - particularly stocks but also property and to a lessor extent commodities - are investment bubbles but when the bubbles will burst.

I have a couple of general observations: first, observers continue to press the comparison to Japan in the 1980s - the Nikkei bull run - and NASDAQ during the dotcom days. As I crudely showed earlier this year comparing support and resistance charts from those bubbles to today's Shanghai Composite and Hang Seng does reveal interesting similarities. But the reality is incredibly different. For example, as high and unrealistic as some price-to-earning ratios appear right now with some Shanghai stocks, they are still far less than the zany p/e levels of NASDAQ in the late '90s. Compared to Japanese equities in the Nikkei run Chinese companies earnings are strong and steady. When it comes to property assets the real estate values in China are nowhere near the valuations seen in '80s Japan or Hong Kong before the Asian currency crisis ten years ago. The pace of urbanization in China and the ancient Chinese reverence for property make the potential for a bust in Chinese property remote, in my view.

As for equities - will the bubble burst? I've got a balloon and a pin ready for the occasion but when it happens is anyone's guess. I predicted the Shanghai Composite would be at 4,600 around the start of the new year - will it lose 1,000 points between now and then? Let's see!

IPO REPORT

Biggest story of this week and next is the A share IPO of PetroChina on the Shanghai Securities Exchange. Were the two and three percent or more drops in the indexes this week because anxious investors are readying their cash for the new shares? Trading begins Monday and everyone expects the offer to raise up to ten billion US dollars.

I'll be back with more next time! See you then!

© Sinomania! 2007 All Rights Reserved.

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