TRANSCRIPT: Chinese markets plunge,
Shanghai Composite down almost 1/3 value since
2007 high, fears of oversupply of shares concern
investors, Buffet and Greenspan comment on sovereign
wealth funds, Hong Kong and Shanghai IPOs, and
the National People's Congress opens its annual
session...
Sinomania! Volume II Webisode 50, March 5, 2008
Chinese Stocks Plunge!
With More Shares Coming;
This Week’s Alpha Bet,
And China’s Parliament Convenes…
BUBBLE BURST?
Chinese markets have plunged to
their lowest levels since last July. The Shanghai
Composite Index closed March 5 at 4292.654 down
18% since the start of the year and has lost almost
a third of its value from last year’s high. The
CSI 300 Index sank below 5,000 since our last
show and is now officially bearish having declined
21% in the past six weeks. Shanghai B shares appear
stuck around 300 and ShenZhen Bs around 600.
Word is hedge fund managers in Hong
Kong and elsewhere believe Chinese domestic shares
are unsustainable and investors are worried about
oversupply of shares particularly with new issues
planned by firms already listed on the Shanghai
exchange. Octogenarian Peking University Professor
Li Yining, known as the father of China’s modern
stock market, says he believes Chinese shares
have finished their readjustment and expects no
bear market this year. But Chinese securities
regulators are concerned about secondary share
issues and say they will strictly examine any
new applications.
Signals are mixed as today in his
opening address at the National People’s Congress
Wen Jiabao said China will introduce a new stock
market for “growth enterprises” sometime in the
near future. The market envisioned is a NASDAQ
type board for small start-ups particularly high-tech
companies to raise funds.
And Chinese equity investors will
have additional outlets soon: China’s banking
regulators have given the green light for the
Qualified Domestic Institutional Investor program
to invest in Tokyo stocks and mutual funds with
plans to allow Chinese investors to buy stocks
in the USA and Germany coming. Also Wen Jiabao
called today for ramping up China’s bond and futures
markets.
SOVEREIGN WEALTH FUNDS
Two prominent investor voices weighed
in on the growing controversy around sovereign
wealth funds, the China Investment Corporation
in particular.
In last week’s shareholder letter
Warren Buffet said “Why should we complain when
[foreign governments] choose [USA] stocks over
bonds?” "Our country’s weakening currency,” Buffet
said, “is not the fault of OPEC, China, etc. In
defending a sensible trade policy, the U.S. should
not single out countries to punish or industries
to protect.”
At an investment conference in Abu
Dhabi, Alan Greenspan came out in favor of global
sovereign wealth funds saying they have done a
“good job, on balance” and that restrictions on
them would be a “very bad idea.”
THIS WEEK'S ALPHA BET
This week’s Alpha Bet starts with
0941.HK, China Mobile, one of the
hottest Red Chips on the Hong Kong exchange. The
long awaited domestic A share listing in Shanghai
is moving forward but CEO Wang Jianzhou told the
South China Morning Post the “size of the offering
won’t be very big.” Investor demand for the shares
however is expected to be very strong.
Next is 3968.HK and 600036.SS,
China Railway Construction, which raised
billions in Hong Kong and Shanghai, the share
offering was oversubscribed 250 times in Hong
Kong and was the fourth most popular IPO in Shanghai.
On the horizon, China Merchants
Bank wants to buy a stake of the planned gigantic
IPO of Visa although United States regulations
limit that stake to only 20%. China Merchants,
traded in Hong Kong under symbol 0133.HK, is the
top credit card issuer in China. A stake in Visa
would greatly enhance its services via the Visa
network.
Taiwan based Want Want China,
a top maker of snack foods and beverages will
IPO on Hong Kong at the end of the month and hopes
to raise up to one and a half billion US dollars,
the bulk of which will be used to build plants
in China to increase its production there. The
company’s parent, Want Want Holdings is already
listed on the Singapore exchange under symbol
W08.
Finally, China Pacific Insurance
Group received approval to IPO in Hong Kong.
Pacific is the third largest insurance business
in China and hopes to sell up to 900 million new
shares. I have no details on pricing at this time.
NPC 2008
China’s National People’s Congress
convened today in Beijing. It is easy for foreign
observers, particularly American media, to dismiss
the Chinese Congress as a rubber stamp farce.
But as I’ve pointed out before, you ignore the
work of the NPC at your peril. The Congress affirms
the direction China is going and gives law to
Beijing’s policies. The NPC is in session until
March 19. I’ll have much more to say about this
year’s session in the next episode.
