BEIJING, March 14 (Reuters) - China’s A-share market may have embarked on a long-term consolidation following hefty gains in the last two years, as stock supply is outstripping demand and corporate profit growth is slowing, a top fund manager said.
But listed companies involved in strategic industries, such as airlines and coal, whose development is backed by the state, may still offer investment opportunities as the overall valuation of the market edges lower, he said.
“The A-share market has been in a correction phase since October 2007. The process could last for a relatively long period of time. It could be one and a half or two years,” said Liu Molin, chief investment officer of Rongtong Fund Management.
Rongtong, which won an award at the Lipper China Fund Awards on Friday for a blue-chip fund that returned 483.8 percent in the last five years, is a Chinese joint venture with Japan’s Nikko Asset Management Co Ltd. Rong Tong had a total of 86.9 billion yuan ($12.26 billion) in assets under management at the end of 2007.
Despite a 35 percent correction from its peak in mid-October, the A-share market remains under downward pressure due to a flood of new equity supply, including from IPOs, new share sales and stocks whose lock-up period has expired, Liu said.
Shares worth 1.6 trillion yuan will be unlocked in 2008, Morgan Stanley estimated, and they will weigh heavily on the market as most of them were bought cheaply.
About 74.4 percent of the A-share market, which has a total capitalisation around 27 trillion yuan, is restricted from trading but has a floating schedule in the next five years, Morgan Stanley said in a report.
SURGING FREE FLOAT
A surge in the free float this year would lead Chinese stock prices to more accurately reflect fundamentals, with major shareholders able to play a much bigger role, Liu said.
“When share prices are high, major shareholders can reduce their holdings or have new shares issued. When share prices are considered low, they can do buybacks,” said Liu, who is also a deputy general manager of Shenzhen-based Rongtong.
The stock market is also coming under pressure from a spate of secondary stock offerings announced in recent months by Chinese firms with A-share listings, including a $16 billion cash call announced by Ping An Insurance <601318.SS>, he said.
If the listed firms invest those proceeds in high-return projects, the offers would actually benefit their shareholders over the long term, he noted.
But, because many listed Chinese firms are controlled by the state, they tend to focus more on expansion than on return on equity, sparking worries among minority shareholders that secondary offers would harm their interests, Liu said.
Also negative for stocks is a slowdown in listed firms’ earnings growth, he said.
Growth may ease to 25-30 percent this year and 15-20 percent in 2009, due to falling stock market returns and rising feedstock costs, with inflation at an 11-year high and setting off a series of monetary tightening measures, Liu said.
Some fund managers expected Chinese listed firms to report average profit growth of about 70 percent for 2007, as a surging stock market buoyed the value of their share holdings.
But selected sectors such as coal and airlines still hold value because they will benefit from a government-led consolidation, he said. Coal, along with renewable energy companies, also stand to gain from record high oil prices.
The market is clearly fighting to hold onto the January lows. Although, we continue to see buyers come in at 1275 in the S&P 500. On Monday's show, hear Larry Levin's take on what he's seeing the markets. Plus, watch for the reaction from the Federal Reserve which releases its policy statement on Tuesday, March 18th. Some traders say the Fed might cut interest rates by a full percentage point. Others say at least a .50 basis point cut is for sure. Currently, the Fed Funds rate stands at 3.0%. Also of note, will be earnings from investment banks Goldman Sachs, Lehman Brothers, Bear Stearns, and Morgan Stanley are due this week.
KUALA LUMPUR: The election results signal the beginning of the possible demise of the New Economic Policy (NEP) and special rights for the Malays, said Datuk Seri Nazri Aziz.
The Umno supreme council member said it appeared that the Malays, especially in the town areas, had become more confident now and felt they could compete with the other races on a level playing field.
“We (Umno) have to really sit down and think. It looks like the educated Malays do not care about Malay rights anymore,” he said when contacted.
“The Malay doctors, lawyers, engineers feel they have made it on their own merit.
“It looks like the NEP is not something that can be used to persuade the Malays to support the Barisan Nasional.
“The Malays are saying ‘you can’t scare us by talking about us losing our rights, because we are here on our own merit’.”
Nazri said it looked like some Malays felt that the NEP was unfair, and questioned why special rights should be given to the Malays.
He described the new confidence among the Malays as good for the Malay psyche.
In the just concluded election, the Barisan only managed a simple majority in Parliament, and lost five states (Kedah, Selangor, Kelantan, Penang and Perak) to the Opposition.
The Opposition had largely said they would dismantle the NEP and put in a place a new affirmative action policy based on need rather than race.
Nazri, who retained his Padang Rengas parliamentary seat by a majority of 1,749 votes, said he barely survived the political tsunami.
He said the youngsters – Chinese, Indians and Malays – who returned from Kuala Lumpur to vote in Perak had tried to persuade their parents, who are Barisan supporters, to either not go out to vote or vote for the Opposition.
“I only survived because of my personal touch with the voters,” he said.
He believed the political landscape in the country had changed irreversibly and that all parties would now have to work harder.
“Every wakil rakyat will have to work to win the hearts of the people. This is good for Malaysia because, at the end of the day, it is the rakyat who benefits,” he said.
Goldman Sachs, Wall Street's most powerful investment bank, will this week announce asset writedowns worth about $3bn (£1.5bn), its biggest jolt to date from the crisis threatening to engulf the world's financial markets.
• News from the banking and financial services sector
Goldman, which has largely thrived amid the turmoil elsewhere on Wall Street, is expected to report a fall in first-quarter earnings of about 50 per cent. The writedown will underline how the financial turbulence is now affecting even the most stellar performers.
The bank's $3bn writedown will be based partly on the declining value of its 4.9 per cent stake in Industrial & Commercial Bank of China (ICBC), which is held separately on Goldman's balance sheet. The share price of ICBC, which conducted the world's biggest ever initial public offering in 2006, has fallen by about 14 per cent in recent months.
Goldman invested $2.3bn for its minority shareholding in ICBC, which is listed on the Hong Kong and Shanghai stock exchanges.
Goldman will also take a hit of about $1.6bn in its leveraged loans business, which has seen a marked decline in recent months amid a dearth in demand for trading bank debt. A further $1.1bn will be written down in connection with assets owned by Goldman's principal investment area, the bank's private equity arm.
Despite the multi-billion dollar hit, Goldman will point to the fact that its exposure to the deteriorating mortgage market remains minimal, according to people close to the bank.
"These are not the kind of toxic assets which have hurt banks like UBS, Merrill Lynch and Citigroup so badly," said one analyst last night.
Senior managers at Goldman, which declined to comment ahead of Tuesday's earnings announcement, have warned against complacency in recent months as rivals have staggered from one set of asset writedowns to another.
Lehman Brothers, which reports first-quarter results alongside Goldman, is expected to mark down significantly more than the $830m of sub-prime and leveraged assets it did in the fourth quarter last year.
The comments of Dick Fuld, Lehman's chairman and chief executive, alongside the results will be monitored closely, as investors assess the potential next casualties of the crisis.
The cost to insure Lehman's debt jumped again on Friday - by 65 basis points to 465 basis points - in spite of its revelation that a fresh $2bn credit line was heavily oversubscribed.
Richard Bove, an analyst at Punk Ziegel & Co, a Wall Street investment bank, admitted that there was a problem of perception with Lehman. "There is a fear that problems affecting Bear Stearns will affect Lehman. Lehman is suspect in the minds of investors," he said.
Consensus forecasts from banking analysts estimate that profit in the first quarter will fall by 63 per cent to around $425m, from $1.15bn in the same period last year. Revenue is expected to fall by 34 per cent to $3.35bn.
5 comments:
China’s A-share consolidation may last 2 years
BEIJING, March 14 (Reuters) - China’s A-share market may have embarked on a long-term consolidation following hefty gains in the last two years, as stock supply is outstripping demand and corporate profit growth is slowing, a top fund manager said.
But listed companies involved in strategic industries, such as airlines and coal, whose development is backed by the state, may still offer investment opportunities as the overall valuation of the market edges lower, he said.
“The A-share market has been in a correction phase since October 2007. The process could last for a relatively long period of time. It could be one and a half or two years,” said Liu Molin, chief investment officer of Rongtong Fund Management.
Rongtong, which won an award at the Lipper China Fund Awards on Friday for a blue-chip fund that returned 483.8 percent in the last five years, is a Chinese joint venture with Japan’s Nikko Asset Management Co Ltd. Rong Tong had a total of 86.9 billion yuan ($12.26 billion) in assets under management at the end of 2007.
Despite a 35 percent correction from its peak in mid-October, the A-share market remains under downward pressure due to a flood of new equity supply, including from IPOs, new share sales and stocks whose lock-up period has expired, Liu said.
Shares worth 1.6 trillion yuan will be unlocked in 2008, Morgan Stanley estimated, and they will weigh heavily on the market as most of them were bought cheaply.
About 74.4 percent of the A-share market, which has a total capitalisation around 27 trillion yuan, is restricted from trading but has a floating schedule in the next five years, Morgan Stanley said in a report.
SURGING FREE FLOAT
A surge in the free float this year would lead Chinese stock prices to more accurately reflect fundamentals, with major shareholders able to play a much bigger role, Liu said.
“When share prices are high, major shareholders can reduce their holdings or have new shares issued. When share prices are considered low, they can do buybacks,” said Liu, who is also a deputy general manager of Shenzhen-based Rongtong.
The stock market is also coming under pressure from a spate of secondary stock offerings announced in recent months by Chinese firms with A-share listings, including a $16 billion cash call announced by Ping An Insurance <601318.SS>, he said.
If the listed firms invest those proceeds in high-return projects, the offers would actually benefit their shareholders over the long term, he noted.
But, because many listed Chinese firms are controlled by the state, they tend to focus more on expansion than on return on equity, sparking worries among minority shareholders that secondary offers would harm their interests, Liu said.
Also negative for stocks is a slowdown in listed firms’ earnings growth, he said.
Growth may ease to 25-30 percent this year and 15-20 percent in 2009, due to falling stock market returns and rising feedstock costs, with inflation at an 11-year high and setting off a series of monetary tightening measures, Liu said.
Some fund managers expected Chinese listed firms to report average profit growth of about 70 percent for 2007, as a surging stock market buoyed the value of their share holdings.
But selected sectors such as coal and airlines still hold value because they will benefit from a government-led consolidation, he said. Coal, along with renewable energy companies, also stand to gain from record high oil prices.
CHART TALK
Market Update: S&P 500
By Beejal Patel
March 14, 2008 at 2:01 PM
The market is clearly fighting to hold onto the January lows. Although, we continue to see buyers come in at 1275 in the S&P 500. On Monday's show, hear Larry Levin's take on what he's seeing the markets. Plus, watch for the reaction from the Federal Reserve which releases its policy statement on Tuesday, March 18th. Some traders say the Fed might cut interest rates by a full percentage point. Others say at least a .50 basis point cut is for sure. Currently, the Fed Funds rate stands at 3.0%. Also of note, will be earnings from investment banks Goldman Sachs, Lehman Brothers, Bear Stearns, and Morgan Stanley are due this week.
Nazri: We may see end of NEP
By SHAHANAAZ HABIB
March 14, 2008
KUALA LUMPUR: The election results signal the beginning of the possible demise of the New Economic Policy (NEP) and special rights for the Malays, said Datuk Seri Nazri Aziz.
The Umno supreme council member said it appeared that the Malays, especially in the town areas, had become more confident now and felt they could compete with the other races on a level playing field.
“We (Umno) have to really sit down and think. It looks like the educated Malays do not care about Malay rights anymore,” he said when contacted.
“The Malay doctors, lawyers, engineers feel they have made it on their own merit.
“It looks like the NEP is not something that can be used to persuade the Malays to support the Barisan Nasional.
“The Malays are saying ‘you can’t scare us by talking about us losing our rights, because we are here on our own merit’.”
Nazri said it looked like some Malays felt that the NEP was unfair, and questioned why special rights should be given to the Malays.
He described the new confidence among the Malays as good for the Malay psyche.
In the just concluded election, the Barisan only managed a simple majority in Parliament, and lost five states (Kedah, Selangor, Kelantan, Penang and Perak) to the Opposition.
The Opposition had largely said they would dismantle the NEP and put in a place a new affirmative action policy based on need rather than race.
Nazri, who retained his Padang Rengas parliamentary seat by a majority of 1,749 votes, said he barely survived the political tsunami.
He said the youngsters – Chinese, Indians and Malays – who returned from Kuala Lumpur to vote in Perak had tried to persuade their parents, who are Barisan supporters, to either not go out to vote or vote for the Opposition.
“I only survived because of my personal touch with the voters,” he said.
He believed the political landscape in the country had changed irreversibly and that all parties would now have to work harder.
“Every wakil rakyat will have to work to win the hearts of the people. This is good for Malaysia because, at the end of the day, it is the rakyat who benefits,” he said.
股市 牛熊之“变
Goldman Sachs to reveal $3bn hit
By Mark Kleinman and Louise Armitstead
16/03/2008
Goldman Sachs, Wall Street's most powerful investment bank, will this week announce asset writedowns worth about $3bn (£1.5bn), its biggest jolt to date from the crisis threatening to engulf the world's financial markets.
• News from the banking and financial services sector
Goldman, which has largely thrived amid the turmoil elsewhere on Wall Street, is expected to report a fall in first-quarter earnings of about 50 per cent. The writedown will underline how the financial turbulence is now affecting even the most stellar performers.
The bank's $3bn writedown will be based partly on the declining value of its 4.9 per cent stake in Industrial & Commercial Bank of China (ICBC), which is held separately on Goldman's balance sheet. The share price of ICBC, which conducted the world's biggest ever initial public offering in 2006, has fallen by about 14 per cent in recent months.
Goldman invested $2.3bn for its minority shareholding in ICBC, which is listed on the Hong Kong and Shanghai stock exchanges.
Goldman will also take a hit of about $1.6bn in its leveraged loans business, which has seen a marked decline in recent months amid a dearth in demand for trading bank debt. A further $1.1bn will be written down in connection with assets owned by Goldman's principal investment area, the bank's private equity arm.
Despite the multi-billion dollar hit, Goldman will point to the fact that its exposure to the deteriorating mortgage market remains minimal, according to people close to the bank.
"These are not the kind of toxic assets which have hurt banks like UBS, Merrill Lynch and Citigroup so badly," said one analyst last night.
Senior managers at Goldman, which declined to comment ahead of Tuesday's earnings announcement, have warned against complacency in recent months as rivals have staggered from one set of asset writedowns to another.
Lehman Brothers, which reports first-quarter results alongside Goldman, is expected to mark down significantly more than the $830m of sub-prime and leveraged assets it did in the fourth quarter last year.
The comments of Dick Fuld, Lehman's chairman and chief executive, alongside the results will be monitored closely, as investors assess the potential next casualties of the crisis.
The cost to insure Lehman's debt jumped again on Friday - by 65 basis points to 465 basis points - in spite of its revelation that a fresh $2bn credit line was heavily oversubscribed.
Richard Bove, an analyst at Punk Ziegel & Co, a Wall Street investment bank, admitted that there was a problem of perception with Lehman. "There is a fear that problems affecting Bear Stearns will affect Lehman. Lehman is suspect in the minds of investors," he said.
Consensus forecasts from banking analysts estimate that profit in the first quarter will fall by 63 per cent to around $425m, from $1.15bn in the same period last year. Revenue is expected to fall by 34 per cent to $3.35bn.
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