Investors baulk at inflated valuations of China stocks
Share prices of mainland listed firms are nearly twice their HK prices
Bloomberg 18 March 2009
(SHANGHAI) China, the world’s best-performing stock market, is looking increasingly expensive after valuations climbed to the highest in a year, compared with mainland companies traded in Hong Kong.
Stocks listed in Shanghai and Shenzhen rose 23 per cent since the end of 2008 as local investors bought on speculation that the government’s 4 trillion yuan (S$897 billion) stimulus package will boost the slowest growth in seven years.
Shares in the yuan-denominated CSI 300 Index traded at 16.2 times earnings this month, compared with 8.6 times for 43 mainland companies in Hong Kong. PetroChina Co, the country’s biggest company, fetches twice the valuation in China as in Hong Kong.
The growing gap shows that international investors are losing confidence both in China’s earnings growth and in the country’s ability to help revive the global economy. The last time the difference in multiples was this wide, Chinese shares lost 19 per cent in 30 days.
‘I can’t see any way that China is the locomotive that pulls the world out of recession,’ said Andrew Milligan, the head of global strategy at Standard Life Investments. ‘It’s difficult for people to buy the China story.’ The Hang Seng China Enterprises Index, which tracks 43 so-called H shares that trade in Hong Kong, has fallen 3.7 per cent in 2009. The drop left H shares trading at a 40 per cent discount to those on the mainland, which are off limits to most foreigners, according to data compiled by Bloomberg.
The CSI 300 Index would have to decline 15 per cent from its peak valuation gap to match its four-year average premium over Hong Kong stocks and 47 per cent before it reached the multiple on H shares, data compiled by Bloomberg show.
Restrictions on foreign and local investment that prevent arbitrage with H shares helped make mainland equities more expensive. Investors outside China could only invest a combined US$10 billion in local-currency securities under the government’s qualified foreign institutional investor programme as of last month. That compares with China’s US$2.11 trillion stock market.
Premier Wen Jiabao said this month that the stimulus package, which includes spending on low-rent housing, infrastructure in rural areas and airports, will keep the government’s 8 per cent growth target for this year within reach.
International investors aren’t counting on the plan’s success. At least 57 Chinese companies have shares traded on both the mainland and in Hong Kong, data compiled by Bloomberg show. Just one - Shenzhen-based ZTE Corp, China’s second-biggest maker of phone equipment - has performed better in Hong Kong.
The average gain in China through last week was 23 per cent this year, while the same companies were down 4.8 per cent in Hong Kong, data compiled by Bloomberg show.
PetroChina has climbed 4.8 per cent in Shanghai this year, giving the oil company a market valuation equal to about US$267 billion, even though chairman Jiang Jiemin said on March 5 that he expects profit this year will be less than 2008 and analysts forecast a 21 per cent decline.
Beijing-based PetroChina, which earned an average of US$16.8 billion in each of the past five years, trades at 16.66 times earnings in Shanghai. In Hong Kong, PetroChina sells for 8.2 times profit.
That’s similar to the 7.96 times earnings investors pay for Exxon Mobil Corp, the only company in the world bigger by market value. It earned an average US$37.4 billion the past five years and has a market value of US$332 billion, according to data compiled by Bloomberg.
China Eastern Airlines Corp, the nation’s third-largest carrier, may report its third annual loss in four years as a slowing economy stems air travel, according to analysts’ estimates compiled by Bloomberg.
In Hong Kong, China Eastern has fallen 11 per cent in 2009 and trades at 11.8 times reported profit. The airline has risen 11 per cent in Shanghai, where it’s valued at 58.6 times earnings.
At that level, the stock is trading at close to the same price-earnings ratio as semiconductor maker Intel Corp in March 2000 during the dot-com bubble. Intel has tumbled 80 per cent from its record high that year.
‘It’s difficult to believe the numbers that are coming out’ of China, said Fraser Howie, managing director at CLSA Asia-Pacific Markets in Singapore. ‘How can Wen Jiabao say confidently in March that you’re going to have 8 per cent growth for the year in such an environment?’
While China is the only one of the world’s five biggest economies still expanding, the pace has slowed for six quarters after peaking at 12.6 per cent between April and June in 2007.
The world’s third-largest economy may expand 6.7 per cent this year, the slowest rate in almost two decades, according to the Washington-based International Monetary Fund.
Investors should buy stocks and other assets in China after the market falls to its 2008 low to profit from an expected recovery, Marc Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview.
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Investors baulk at inflated valuations of China stocks
Share prices of mainland listed firms are nearly twice their HK prices
Bloomberg
18 March 2009
(SHANGHAI) China, the world’s best-performing stock market, is looking increasingly expensive after valuations climbed to the highest in a year, compared with mainland companies traded in Hong Kong.
Stocks listed in Shanghai and Shenzhen rose 23 per cent since the end of 2008 as local investors bought on speculation that the government’s 4 trillion yuan (S$897 billion) stimulus package will boost the slowest growth in seven years.
Shares in the yuan-denominated CSI 300 Index traded at 16.2 times earnings this month, compared with 8.6 times for 43 mainland companies in Hong Kong. PetroChina Co, the country’s biggest company, fetches twice the valuation in China as in Hong Kong.
The growing gap shows that international investors are losing confidence both in China’s earnings growth and in the country’s ability to help revive the global economy. The last time the difference in multiples was this wide, Chinese shares lost 19 per cent in 30 days.
‘I can’t see any way that China is the locomotive that pulls the world out of recession,’ said Andrew Milligan, the head of global strategy at Standard Life Investments. ‘It’s difficult for people to buy the China story.’ The Hang Seng China Enterprises Index, which tracks 43 so-called H shares that trade in Hong Kong, has fallen 3.7 per cent in 2009. The drop left H shares trading at a 40 per cent discount to those on the mainland, which are off limits to most foreigners, according to data compiled by Bloomberg.
The CSI 300 Index would have to decline 15 per cent from its peak valuation gap to match its four-year average premium over Hong Kong stocks and 47 per cent before it reached the multiple on H shares, data compiled by Bloomberg show.
Restrictions on foreign and local investment that prevent arbitrage with H shares helped make mainland equities more expensive. Investors outside China could only invest a combined US$10 billion in local-currency securities under the government’s qualified foreign institutional investor programme as of last month. That compares with China’s US$2.11 trillion stock market.
Premier Wen Jiabao said this month that the stimulus package, which includes spending on low-rent housing, infrastructure in rural areas and airports, will keep the government’s 8 per cent growth target for this year within reach.
International investors aren’t counting on the plan’s success. At least 57 Chinese companies have shares traded on both the mainland and in Hong Kong, data compiled by Bloomberg show. Just one - Shenzhen-based ZTE Corp, China’s second-biggest maker of phone equipment - has performed better in Hong Kong.
The average gain in China through last week was 23 per cent this year, while the same companies were down 4.8 per cent in Hong Kong, data compiled by Bloomberg show.
PetroChina has climbed 4.8 per cent in Shanghai this year, giving the oil company a market valuation equal to about US$267 billion, even though chairman Jiang Jiemin said on March 5 that he expects profit this year will be less than 2008 and analysts forecast a 21 per cent decline.
Beijing-based PetroChina, which earned an average of US$16.8 billion in each of the past five years, trades at 16.66 times earnings in Shanghai. In Hong Kong, PetroChina sells for 8.2 times profit.
That’s similar to the 7.96 times earnings investors pay for Exxon Mobil Corp, the only company in the world bigger by market value. It earned an average US$37.4 billion the past five years and has a market value of US$332 billion, according to data compiled by Bloomberg.
China Eastern Airlines Corp, the nation’s third-largest carrier, may report its third annual loss in four years as a slowing economy stems air travel, according to analysts’ estimates compiled by Bloomberg.
In Hong Kong, China Eastern has fallen 11 per cent in 2009 and trades at 11.8 times reported profit. The airline has risen 11 per cent in Shanghai, where it’s valued at 58.6 times earnings.
At that level, the stock is trading at close to the same price-earnings ratio as semiconductor maker Intel Corp in March 2000 during the dot-com bubble. Intel has tumbled 80 per cent from its record high that year.
‘It’s difficult to believe the numbers that are coming out’ of China, said Fraser Howie, managing director at CLSA Asia-Pacific Markets in Singapore. ‘How can Wen Jiabao say confidently in March that you’re going to have 8 per cent growth for the year in such an environment?’
While China is the only one of the world’s five biggest economies still expanding, the pace has slowed for six quarters after peaking at 12.6 per cent between April and June in 2007.
The world’s third-largest economy may expand 6.7 per cent this year, the slowest rate in almost two decades, according to the Washington-based International Monetary Fund.
Investors should buy stocks and other assets in China after the market falls to its 2008 low to profit from an expected recovery, Marc Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview.
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