The rumour that vastly successful US investor Warren Buffet，worshiped the “God of Investment” in China, planned to sink $500 million into a Chinese company, but was refused, has triggered a round of speculation in China’s stock market, pushing some companies’ share prices up despite the slumped market. It seems China’s A-share investors are now sensitive to any news or rumours.
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Buffet Rumours Trigger A-share Tremors
28 August 2008
CSC staff
The rumour that vastly successful US investor Warren Buffet，worshiped the “God of Investment” in China, planned to sink $500 million into a Chinese company, but was refused, has triggered a round of speculation in China’s stock market, pushing some companies’ share prices up despite the slumped market. It seems China’s A-share investors are now sensitive to any news or rumours.
Buffet told CNBC on August 22 that he had planned a $500 million bid for a Chinese company but it was not accepted. He didn’t reveal the name of the company or the industry it belonged to.
Chinese media first reported the interview on August 23, along with speculation from Chinese analysts that the company Buffet was targeting might be Citic Bank, whose A-share price promptly rose, at one point by 9.9%. It is reported that in one day 200 million yuan poured through these shares, accounting for 1/25 of the total daily trading.
Citic Bank soon denied the rumour. “Citic Bank has never contacted Buffet in any form through any person. It is only because Citic Bank once showed interest in Bear Stearns, and Buffet prefers companies without equity incentive systems listed in both mainland China and Hong Kong. So the market guesses it should be Citic Bank,” said a source to China Business News.
Weichai Power, China’s leading diesel engine producer, is another considered company. In China’s online forums, some of Weichai’s shareholders have claimed it to be the Buffet-favored firm. Since no media has reported on this, Weichai Power has not commented.
The 10-month market slump has made Chinese investors sensitive to any rumour from the outside, especially concerning overseas investors who have become their idols
On August 19, Gong Fangxiong (Frank Gong), a Hong Kong-based JP Morgan Chase researcher, said in a report that China was considering an economic stimulation plan involving at least 200-400 billion yuan, and would take measures to stabilize the domestic capital market, on which news the next day’s Shanghai Composite Index boomed by 178 points, or 7.63%. Later, Gong admitted that it was only his personal prediction and not official news.
Buffet did invest $500 million in PetroChina, China’s largest petroleum company, but sold his shares, taking a $3.5 billion profit. This is considered a wonderful investment case in China. Chinese entrepreneurs bid for a seat in Buffet’s charity lunch party every year, and two have succeeded. People value Buffet’s every word higher than hints from the China Securities Regulatory Commission.
China has to improve the rules and transparency for companies to buy into listed companies there. They always want face but really not substance in holding up the SSE.
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