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NOW PLAYING: Sinomania! Episode 3
week of January 26, 2007
Bubble Trubble in China?
A look at Chinese stocks and securities markets for the week of January 26, 2007, with a discussion of an equities bubble, new IPOs on NASDAQ and Singapore, and Yuan appreciation.
SunVic Chemical Holdings Prospectus
3SBio Inc. IPO Data
Allyes Ad Network
Renminbiexchange rate (CNY)

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Episode 1

Sinomania! Episode 3 TRANSCRIPT

First aired: January 25, 2007, 12:25 AM


ANNOUNCER: Hello and welcome to Sinomania! For the week of January 26, 2007

Bubble Trouble in China! Chinese stock markets continue to reach record highs Is it irrational exuberance Shanghai-style?

More IPOs = two on NASDAQ and more for Singapore.

And a look at China’s currency with money everywhere, what to expect to this year with Renminbi.


Stock market capitalization in china has surpassed one trillion dollars for the first time with Shanghai up 130%.

Both Shanghai and Shenzhen exchanges closed with record highs on Monday, up nearly four percent overall on strong buys in retail and transportation sectors.


[TRANSCRIPT Continued]

Overall market turnover is five times recent levels.

This spectacular performance has brought the bears out of with strong warnings not to mess with the Chinese honey pot.

Among those warning investors to stay away from China this year are Citigroup, HSBC, UBS Warburg, and – of course – Dr. Doom himself, the world’s best known contrarian, Marc Faber.

From his lofty office in Chiang Mai, Marc Faber predicts a severe correction this year in Asian markets generally and China in particular.

His words get attention as Faber famously predicted the ’87 wall street crash and the ’97 Asian currency crisis among other accolades. But he got his SARS call wrong and according to one analysis, Faber has been right about 54% of the time.

We here at Sinomania! are shamelessly optimistic but that doesn’t mean we don’t see some risks ahead.

Price to earnings ratios are getting high with many Chinese stocks. The average P/E for Shanghai and Shenzen is 38 now versus 16 in the much larger and mature Hong Kong market. Two sectors look risky: major financials are trading at P/E ratios in the 40s and the real estate sector is selling at ratios over 50 times earnings.

But corporate profits were up 25% last year and that trend continues. Deutsche Bank’s China market call is a “rational bubble” and other analysts see no crash ahead but significant slowing this year. And remember the slow but steady appreciation of the Yuan, China’s currency, increases the value of Chinese assets.

I’ll have more about that in the currency report.


Three IPOs to talk about this week: First, in petrochemicals, SunVic Chemical Holdings Ltd. will offer over a quarter of its enlarged share capital on the Singapore exchange. SunVic, out of Wuxi, makes petrochemical products for industrial and consumer products. Singapore is an increasingly popular listing spot for Chinese companies.

Next up, biotechnology, firm 3SBio Inc., of Shenyang, has applied with the US SEC for a listing on NASDAQ under symbol SSRX. 3sBio plans an initial public offering over $100 million, offering over 7 million ADR shares, each representing 7 ordinary shares, in the 12 –14 dollars price range.

Lastly, Internet advertising company Allyes AdNetwork of Shanghai plans $100 million IPO on NASDAQ as early as March. The company has at least half the Internet ad market in china. The company is denying rumours of a takeover by Focus Media Holding, one of China’s biggest media firms.


Money, money, everywhere!

Already this year, the Yuan – China’s unit of money – has appreciated ½ percent. That makes the Yuan more expensive than the Hong Kong dollar.

This is certainly not enough to fend off critics in Congress like Chuck Schumer or Lindsey Graham who still threaten tariffs on Chinese imports and a return to 1930s style protectionism but it does show that China’s money markets are changing.

Liquidity is everywhere in China now. Foreign exchange reserves now exceed $1 trillion, stockmarkets are capitalized at $1 trillion with Hong Kong stocks nearly twice that amount, and there is an estimated $2 trillion in cash in household savings among Chinese.

One important area to pay attention to is how China invests its huge foreign exchange reserves. Right now China is the second largest holder of US treasuries – America’s debt – after Japan. But the Chinese have indicated that they are looking to change how they invest their money. China’s holdings impact the US economy. This is another reason why Congress must tread very carefully. For now, Treasury Paulson and the Bush administration are being cautious. After 2008 all bets may be off

This report is based on information available to the public and no representation is made that it is accurate or complete. This report is not a recommendation to buy or sell the securities of companies mentioned. Sinomania! provides information only and does not offer any investment advice. Please see our important Disclaimers and other Information.
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