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
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 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.
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
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, I'll see you next time!