The longest-term investors in stocks listed in mainland China - controlling shareholders and some foreign funds - have started to buy again, suggesting that they see value in a market that has plunged by two-thirds in the past 11 months.
More in comments...
View PDF
1 comment:
A hint of confidence in mainland Chinese markets
By Lu Jianxin
Reuters
15 September 2008
SHANGHAI: The longest-term investors in stocks listed in mainland China - controlling shareholders and some foreign funds - have started to buy again, suggesting that they see value in a market that has plunged by two-thirds in the past 11 months.
The purchases do not necessarily mean the market has hit a bottom. Chinese retail investors and mutual funds, which together owned nearly 80 percent of tradable shares at the end of last year, may continue dumping stocks for a while.
But the purchases do indicate that the process of recovery may have begun, and that some investors see the potential for fat profits several years out.
“It’s clear that long-term investors have now begun to build fresh positions, though their purchases have so far been small, indicating it will take time before longs gain the upper hand in the market,” said Ren Chengde, an analyst at Galaxy Securities.
The Shanghai composite index has plunged 66 percent since October in one of the biggest bear markets for equities in history. Nearly $3 trillion of value, equivalent to more than 70 percent of the country’s gross domestic product, has been erased from the Shanghai and Shenzhen exchanges.
That has brought the average price/earnings ratio of companies listed in mainland China down to 17 times historic earnings from about 70 times less than a year ago. Forward P/E ratios are now near the record low of 16 times hit in 2005, and close to levels seen in some major global stock markets.
Such valuations may still not seem inexpensive to shorter-term investors; analysts think corporate profit growth could drop to zero next year because of a global economic slowdown and a cooling of China’s growth.
But long-term investors think the country’s economic boom means that valuations may not stay so low for more than a year or two. The prospect of continued strong growth, in addition to encouragement from Chinese regulators who want to support the stock market, has prompted a series of big state shareholders to begin raising their stakes in listed companies over the past several weeks.
New rules issued by the securities regulator last month allow a big shareholder to raise its stake in a company by as much as 2 percentage points over 12 months without first seeking official approval. Previously, a shareholder with over 30 percent needed to apply in advance for permission to raise its stake.
Parents of about 10 listed companies, including Wuhan Iron and Steel, Hisense Electric, Shanxi Coking, Ductile Pipes and Zhejiang Wanfeng Auto Wheels have since announced plans to buy shares on the market; some have already started buying.
The latest example is the flag carrier Air China, which said Friday that its parent company had obtained approval to increase its stake by 2.86 percentage points to 54.52 percent. It did not give a timetable for the share purchases.
There are also signs that big state shareholders are slowing sales of stocks that have been made newly tradable by the expiry of lock-up periods.
Some foreign institutional investors, who buy stocks under quotas in China’s Qualified Foreign Institutional Investor program, also appear to be raising their holdings. Recent complete data on QFII investors’ activity is not available, but the China Securities Journal has calculated, citing clearing house data, that the market value of QFII stock holdings jumped by $4.5 billion in August.
Post a Comment