Overall market turnover is five times recent
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
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.
SEGMENT 2: IPOs
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
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.
TRANSITION GRAPHIC: 100 YUAN NOTE
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