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Moolah
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Posting #1: Fri Jun 13th, 2008 09:05 |
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Shanghai Low
FROM TODAY'S WALL STREET JOURNAL ASIA
June 13, 2008
Shanghai's stock market continued its seven-day slide yesterday, closing at 2,957.53 – a shade below an important psychological 3,000 resistance level. If Beijing wants to create conditions for a healthier market in coming months, it will let this slide run its course.
There are good economic explanations for this week's bear run. As the U.S. and European economies slow, there are worries about China's export growth. Domestic consumer price inflation hit 7.7% last month. Beijing is trying to slow the economy in response – most recently by increasing banks' capital reserve requirements Saturday. In any normal market, investors would be worried about corporate earnings right about now.
But China's stock market isn't normal; underlying economic growth is less important than government meddling. In the past few months, regulators have reduced the stamp tax on stock transactions, imposed new regulations to limit large block sales, and even told mutual fund managers not to sell their holdings too quickly.
As a result, investors are punting on what the next new regulation will be, rather than on the economic fundamentals of listed companies. This leads to inefficient capital allocation, herd behavior and boom-and-bust cycles. It may also prove self-defeating. Now that Beijing has shown it can't hold the market above 3,000, the danger is that investors lose faith completely and a sharper plunge might ensue.
Here's a better solution: Rather than ratchet up regulation, Beijing could expand the Qualified Foreign Institutional Investor program that allows foreigners to buy Shanghai-listed stocks. The more investors participate in a freer market, the better and more rational the pricing will be.
Investors in Shanghai stocks are feeling pain today – the market is down 44% so far this year. There may not be much Beijing can do to stanch the flow in the short term. As for the medium and long term, freeing the market is the only thing that will keep China's markets working smoothly.
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Posting #2: Fri Jun 13th, 2008 09:09 |
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Investors protest at China bourse as stocks dive
Reuters, Thursday June 12 2008 By Royston Chan
SHANGHAI, June 12 (Reuters) - Complaining that they had lost tens of thousands of dollars in the stock market, a small group of angry investors demonstrated outside the Shanghai Stock Exchange on Thursday as the market tumbled to new 14-month lows.
The public protest -- a rare event in China's big cities, where dissent is strictly controlled -- underlined fury and despair among China's millions of individual investors as the stock market crashes.
"More than 100 million investors have been buried in the ruins of the stock market by the earthquake in China's capital markets. Most of them are dying," read a text message widely circulated among mobile phones this week.
Police watched from nearby and security guards tried to stop a television cameraman from filming, but they did not interfere with the demonstration at the stock exchange. One protestor apparently fainted and was taken away in an ambulance.
Hit by tightening monetary policy and slowing corporate profit growth, the Shanghai Composite Index <.SSEC> sank 2.21 percent to a 14-month closing low on Thursday.
It has lost 11 percent in the past three days and 52 percent from last October's record peak. About $1.9 trillion of value in the Shanghai and Shenzhen markets has been erased since December.
Public anger over the crash, expressed in a slew of mobile phone text messages and postings in internet chat rooms, may affect economic policy and even have political implications as the government seeks to ensure the appearance of social harmony before the Beijing Olympics in August.
Much of investors' anger is aimed directly at the government officials overseeing the market, who encouraged a bull run last year and are therefore being blamed for its demise.
"Not only human beings but also the gods hate these worthless officials," wrote an anonymous investor on popular investment website guba.eastmoney.com.
Some investors hope the government will be pressured by the discontent into intervening to halt stocks' slide. But it be unable to do that without suspending its monetary tightening campaign -- and with inflation near 11-year highs, that could risk worse discontent down the road.
Whatever happens, authorities' hopes of building the market into a reliable funding source for companies may be set back if individual investors desert stocks for the long term.
"The problem is that in the current situation, people will just take profits on every rebound. More and more investors are likely to stay away from market for some time," said Chen Huiqin, analyst at Huatai Securities in Shanghai.
PROTEST
The group of about eight middle-class demonstrators at the Shanghai exchange on Thursday sat on the steps of the market's main building, one of them typing on his laptop computer, to protest losses suffered on warrants in China Southern Airlines.
A 28-year-old office worker who identified himself as Xu said he had lost 100,000 yuan ($14,500) in the stock market, about 20 months' salary for many Shanghai workers.
"Ninety-eight percent of small investors lost an arm and a leg. I don't know what I can do, so the only decision I can make now is to sit here," Xu said.
The protestors said they had lost money buying one-year put warrants in China Southern <580989.SS>, which more than quadrupled in price over six days to a peak of 1.35 yuan on June 2 but have since plunged to just 0.10 yuan.
The warrants can be exercised at a profit if China Southern's <600029.SS> share price over the 10n days before they expire on June 20 averages less than a strike price of 7.43 yuan.
But the airline's shares closed well above that level on Thursday, at 8.61 yuan, so the warrants look set to expire worthless. The protestors accused big institutional investors of artificially supporting the stock to make money at the expense of small investors.
Such debacles have contributed to a dramatic decrease in the flow of new investors into the market. Stock-focused mutual funds launched in the past few months have each drawn just a few hundred million yuan of subscriptions, compared to tens of billions of yuan in a single day during last year's bull run. (Writing by Andrew Torchia; Editing by Kim Coghill)
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Posting #3: Fri Jun 13th, 2008 09:11 |
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Posted on Motley Fool!!
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Is the China Story Over?
By Tim Hanson and Bill Mann June 12, 2008
If you read the financial press, then you've seen at least one pundit declare that China is done.
Heck, the Shanghai Composite dropped 8% Tuesday and another 2% Wednesday. In its U.S. listing, megacap stalwart PetroChina (NYSE: PTR) has shed 25% of its value since the year began, while Suntech Power (NYSE: STP) has been cut in half. In just the past week, New York-listed Chinese stocks Ctrip.com (Nasdaq: CTRP), LDK Solar (NYSE: LDK), and Focus Media (Nasdaq: FMCN) have dropped 10% or more.
Many -- particularly, the unsophisticated investors who trade on China's domestic markets -- are selling as though the jig is up.
And maybe it is ...
After all, the China story is almost a decade old now, and we've devoted conferences, books, magazines, and TV specials to telling and retelling it in the States. In addition, China's 25-year streak of double-digit GDP growth will be coming to an end this year. Its economy today is starting to look more like that of a developed superpower than a souped-up growth story.
What China is and isn't
If you travel to Shanghai or Beijing, the story looks like it's in its final chapter. Skyscrapers stand tall as far as the eye can see (which is, admittedly, not that far given the air pollution), and luxury storefronts -- the real stuff -- line the main avenues. In Beijing, the CCTV (China Central Television) building -- with its two Rem Koolhaas-designed cantilevered towers that come together more than 700 feet above the ground -- may be the most advanced architectural marvel on the planet.
You might be asking yourself, "What more is there to do?"
What you have to remember is that Beijing and Shanghai do not equal China any more than New York equals the United States. Beijing and Shanghai have more than 30 million people between them; China has 1.3 billion.
The Chinese financial experiment launched 30 years ago did not contemplate turning a few big cities into world-class financial centers. Rather, it contemplated improving the financial lives of everyone in the country. And on that score, there's a long, long way to go. You can see this a few miles outside of Beijing. You can really see it in a massive second-tier city like Xi'an.
But first, about the volatility
The Chinese stock market was among the hottest in the world from 2003 to 2007. Since last autumn, the Shanghai Stock Index (made up of the country's largest companies traded in China) has dropped by more than half. The "traded in China" part is important, as it provides almost all the context you need to know about what happened earlier this week.
You see, China's stock markets are essentially closed to foreign investors, and Chinese citizens have minimal to no access to any stock markets outside of China. Plus, there are no short-sales and no derivatives markets. This means, quite simply, that the Chinese stock market is not economics-driven. It's liquidity-driven, pushed up and down by millions of unsophisticated investors who plowed their money into the market in search of the next sure thing.
What happens in Shanghai or in Shenzhen has almost no impact at all on the U.S. listings of Chinese companies, companies like Ctrip.com or PetroChina. (Although, as mentioned at the start, these companies have been sold off here in the States, too.) In November, PetroChina's Chinese IPO valued it at $1 trillion. Its U.S. share price hardly moved, though it was valued in New York at scarcely one-third that amount. Point being: Ignore the wiggles and waggles of the Chinese market. It's still an adolescent, reacting more to hormonal shifts than anything approaching logic.
Man, this is hard work
Right now, we are on a Motley Fool Global Gains research trip in Asia. Our goal in coming here was to get the investor's view from the ground. That's why we went to Xi'an -- to see "the real China."
When we visited Xi'an earlier this week, we took a ride out to see Emperor Shi Huangdi's -- the first emperor of China's -- Terracotta Army. Built and buried 1.5 kilometers from the emperor's tomb back in 210 B.C., the 8,000 soldiers -- constructed by 700,000 workers -- were to serve as his protectors in the afterlife. And every soldier was unique.
Most amazing, however, is that no one knew they were down there until a farmer digging a well uncovered a head in 1974. There was no written record of the army's existence, and nearly 2,200 years passed between the time a shovel concealed them and the time a shovel revealed them.
Yes, China is that old
When the Terracotta Army was constructed, China was a burgeoning power with the aspiration to control vast territories in Asia. This is why, when you talk to many Chinese, particularly those with a sense of history, they call China a re-emerging nation.
Because Xi'an is not just ancient history. It's also a modern Tier Two city southwest of Beijing that the government has anointed the hub for its planned western migration. That makes it a tipping point ... a place where China's past comes face to face with its future.
In the area just north of the city, you can see the small, struggling agrarian villages of 20 years ago, as well as the massive factories of 10 years ago. They're situated side by side as though they were a spectrum for Chinese development.
Yet when you drive past these places, you're the only car on a modern and massive six-lane highway ... a ghost road.
The mystery of the ghost road
Despite the volatility that has characterized the Chinese stock market this year, China is very much a planned economy. This is why -- as investors -- we're told to pay attention to the government's five-year plans. (They're a cheat sheet for identifying promising investment themes.)
So when the government decided that Xi'an would serve as the center for westward migration, it also set to making sure that it would turn out that way. That means tax incentives, forced consolidations, and -- the explanation for the ghost roads -- billions of dollars of infrastructure investment.
As a result, the foundation for the next chapter of Xi'an's story has been laid. It will be a different city in a few years. When we asked Johnnie Wang, assistant president of China Green Agriculture (OTC BB: CGAG) and our host during much of our time in Xi'an, what would happen to villages and small stores that currently compose much of the north side of the city, his reply was simply, "In three years, they will all be gone."
They are to be replaced by the industrial parks that will drive the move west, and by the massive apartment complexes that will house the millions of rural villagers who will move to the city to find work.
When the past meets ...
But there's tension in Xi'an. Given the role that the city has played in China's history, the people are particularly cognizant of their traditions ... traditions they stand to lose to rapid urbanization. Johnnie is one of those guys. He's torn. When he took us to see the Terracotta Army, he made sure we got a tour guide because otherwise, "we'd just see the figures without understanding their significance."
Yet he works for a company that has earned a rich valuation by making organic fertilizers from state-of-the-art R&D and manufacturing facilities. That rich valuation isn't that much of a shock, truth be told -- it's what you get when you cross the runaway success of industry players Potash (NYSE: POT) and Monsanto (NYSE: MON) with China's massive market opportunity (population 1.3 billion).
This business plan straddles the line between the past (sustainable farming) and the future (pursuing the means necessary to feed an enormous population).
But China Green isn't just on the right side of China's move to more sustainable and environmentally friendly growth. It's the first company in the space to get nationwide distribution and target industry consolidation ... to use Western processes to subvert an otherwise traditional industry. (You can read all of our notes from the meeting with China Green by clicking here. If you're not a Global Gains subscriber, just sign up to become a free guest member.)
It's history hanging in tension with the future. That's how it goes in China ... where the story is very clearly not over.
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Posting #4: Mon Jun 16th, 2008 08:45 |
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Chinese Factories Are Still Busy, But Signs of Slowing
Topics:Economy (Global) | Interest Rates | Inflation | ChinaBy Reuters | 16 Jun 2008 |
China's factories hummed along last month, barely touched by the devastating earthquake in Sichuan, but the underlying trend of slightly softer growth remained intact.
Industrial production growth inched up to 16.0 percent in the the year to May, topping market forecasts of 15.7 percent, which was also April's pace, the National Bureau of Statistics said on Monday.
But growth in the first five months of the year was 16.3 percent, down from 18.1 percent in the same period in 2007.
"The biggest reason for the deceleration in industrial output is the export slowdown," said Jiang Chao, an analyst with Guotai Junan Securities in Shanghai. "If China's exports continue to ease, the trend for industrial production is clear -- there will be further slowdown," he said.
Trade figures last week showed that while China's exports have held up well in the face of a sluggish U.S. economy, they are no longer expanding at the torrid rate of the past few years.
Complicating the interpretation of the industrial output data were changes to the Chinese schedule of public holidays, which gave May three extra working days. Controlling for these additional hours on the factory floor, activity was actually a touch slower than first meets the eye, economists noted.
The statistics bureau referred to the calendar quirks, saying pure comparisons with last year were difficult.
What was much clearer was the longer-term picture of the robust Chinese economy shifting down a gear under Beijing's guidance.
"The softer industrial production growth may have reflected the effects of tightening measures adopted so far, in particular the credit tightening since last October," Goldman Sachs economists Yu Song and Hong Liang said in a note to clients.
Central Bank's Dilemma
Concerned about inflation, which has been running near decade highs for the past half year, authorities have imposed strict limits on commercial lending and tied up more money by raising banks' reserve requirements to record levels.
China, like other countries, faces a delicate balancing act, as it judges whether to keep its foot on the brake and ensure inflation does not flare higher, or to ease the pressure on factories if the world economy slows much more.
The May 12 earthquake that rocked Sichuan had little impact on the national output figures, as the corner of the southwestern province hit hardest was remote and accounted for about 1 percent of gross domestic production.
China has thrown itself into the rebuilding efforts with fervor, something which the central bank has encouraged while also cautioning that tightening measures should not be cast aside.
"In the second half, China's industrial output will rebound," Tang Jianwei, an analyst at the Bank of Communications in Shanghai, said. "Reconstruction after the disasters we've had will boost investment and thus industrial production."
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Posting #5: Tue Jun 17th, 2008 13:19 |
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China Stocks Drops for 10th Day, Set Record Losing Streak
By Zhang Shidong
June 17 (Bloomberg) -- China's stocks dropped for a 10th day, with the benchmark CSI 300 Index completing a record losing stretch, on concern government measures to curb increasing consumer prices will hurt corporate earnings.
Citic Securities Co., China's biggest publicly traded stockbroker, and China Vanke Co., its largest listed property developer, led declines.
``Concerns about the economic fundamentals have escalated into a complete loss of confidence in the stock market now,'' said Fan Dizhao, a Shanghai-based analyst at Guotai Asset Management Co., which oversees the equivalent of $7 billion.
The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, lost 109.57, or 3.7 percent, to 2,842.68 at the close in Shanghai, rounding out a decline of 22 percent in 10 days. About 18 stocks fell for each that rose on the 300-member index today, with about 70 stocks -- or a quarter of the index -- falling by the 10 percent daily limit.
The index ended the day 50 percent below its record close of 5,877.20 set on Oct. 16. About half of the Chinese companies listed on the Shanghai and Shenzhen exchanges traded at their lowest in at least a year, according to data compiled by Bloomberg.
Citic Securities slid 7 percent to 24.76 yuan, its lowest close since April 1. Vanke lost 6.1 percent to 9.95 yuan, a level not seen since May 16, 2007. Industrial Bank Co., part-owned by a unit of HSBC Holdings Plc, fell 6.3 percent to 26 yuan.
Kweichow Moutai Co., the maker of Moutai, the fiery liquor used at official banquets, retreated 1.7 percent to 141.97 yuan, completing a 10-day, 17 percent slide. Wuliangye Yibin Co., China's biggest spirits maker, slid 4 percent to 16.70 yuan.
Index Down
A measure tracking consumer-related stocks trades at 42 times earnings, the highest among the CSI 300's 10 industry groups, according to Bloomberg data. The CSI 300 is valued at 21 times earnings.
The CSI 300 is down 47 percent this year, the most among benchmark indexes from the world's 20 biggest equity markets, as China's government stepped up efforts to control increases in consumer prices. The central bank required lenders to set aside a record amount of money as reserves this year after raising interest rates six times in 2007.
The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 2.8 percent to 2,794.75. The Shenzhen Composite Index dropped 4.5 percent to 801.97.
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Posting #6: Thu Jun 19th, 2008 02:35 |
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Chinese Stock Fall Will Not Persist: Senior Adviser
By Reuters | 17 Jun 2008 | 11:15 PM ET
The slide in China's stock market will not continue, as the country's economy remains resilient and the impact of global credit problems is limited, a senior government adviser said in an article published on Wednesday.
"China's stock market looks so rainy now, with share prices plunging recently in contrast to the sunny sky of the country's economic fundamentals, which are generally trending stronger," said Li Deshui, a member of the Chinese People's Political Consultative Conference (CPPCC), a top government advisory body.
"This phenomenon apparently runs contrary to the principle that the stock market should be the barometer of the economy and thus will not be sustained," Li, who is also an adviser to the National Bureau of Statistics, said in the article published in the official China Securities Journal.
China's benchmark Shanghai Composite Index has tumbled 19 percent so far this month as the central bank tightens monetary policy more aggressively than expected, and as rising raw material prices cut corporate profit margins.
The index ended at a 15-month low of 2,794.751 points on Tuesday, down 54 percent from last October's peak. About $2.2 trillion of value on the Shanghai and Shenzhen exchanges has been lost since October, making the bear market by far the most costly since China's modern stock market was launched in 1990.
Li, whose position gives him influence among policy makers but does not give him real authority over financial matters, said the U.S. subprime crisis should not have a major impact on China's stock market as few Chinese companies had invested in the U.S. credit market and no foreign firms were listed in China.
The recent financial turmoil in neighboring Vietnam was also an "isolated case" and would not be able to assault such a large economy like China, he said.
Vietnam's ruling Communist Party is facing one of its biggest challenges with yearly inflation in double digits for seven consecutive months, hitting 25.2 percent in May, while the country's stock market has dropped 60 percent this year.
"It is very likely for China's economy to maintain stable and rapid growth, not only this year but also in a certain period to come," Li said in the article. "To sum up, China's stock market will not fail to live up to the expectations of investors."
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Posting #7: Fri Jun 20th, 2008 01:58 |
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China Hikes Fuel Prices by 18%, Fuel Protests Spread
Topics:China | Energy
Sectors:Oil and Gas
Companies:PetroChina Company Limited | SINOPEC Shangai Petrochemical Company, Ltd.By Reuters | 19 Jun 2008 | 07:53 PM ET Font size: China unexpectedly raised retail gasoline and diesel prices by up to 18%, sending oil prices tumbling as Beijing moved to temper demand at the risk of stoking domestic angst over decade-high inflation.
The increase in regulated fuel prices, China's first hike in eight months and its sharpest ever one-off rise, sent crude prices down by as much as $5 a barrel in New York trade overnight as dealers bet it might slow demand growth from the world's second-largest oil user, while U.S.-listed shares in top refiner Sinopec SINOPEC soared.
After making little progress in recent years toward its long-stated goal of raising energy prices to reflect higher costs and to encourage greater efficiency, China will also increase power tariffs by nearly 5 percent, while freezing thermal coal prices to revive generators' profits.
While neighbors from India to Indonesia have already bowed to the pressures of near $140 oil by scaling back subsidies and raising fuel prices, most analysts had expected Beijing to hold out until after the Olympics in August as policymakers focused on battling inflation and avoiding any hint of social unrest.
However, it comes at a time of mounting international pressure for some kind of action to tame soaring global prices, which have spurred protests worldwide and threaten to cut economic growth.
On Sunday the world's biggest oil producers and consumers will convene a crisis meeting in Jeddah, Saudi Arabia, to try to halt oil's six-year rally -- blamed by some, including the U.S. Energy Secretary just weeks ago, on subsidies in countries like China that shield consumers from soaring costs.
"This is very significant, a watershed move which suggests the Chinese government is prepared to risk unpopularity to curb the growth in domestic fuel demand," said John Kemp, commodities economist at RBS Sempra in London." "We've already seen other Asian economies cut subsidies and the one big hold out, until now, was China."
Fearful of stirring popular resentment, Beijing also pledged subsidies to lower-income groups such as farmers, fishermen and cab drivers, similar to the targeted payouts that countries like Malaysia are now adopting as they reduce fuel subsidies that distort markets and benefit the rich more than the poor.
In Beijing and Shanghai, motorists queued for gasoline at petrol stations on Thursday night as word of the price hike leaked out. Police stood by at one Beijing petrol station.
Hike Still Lags Crude
Prices for gasoline and diesel fuel will rise by 1,000 yuan (US$145.5) per ton each effective from midnight, state media reported on Thursday evening.
The 16.7 percent increase in gasoline takes the pump rate to about 75 U.S. cents a litter, still a quarter cheaper than in the United States and about one-third what UK motorists pay. Prices have doubled since 2003, but crude has more than quadrupled. China also raised jet fuel prices by 1,500 yuan per ton.
Beijing will raise average electricity tariffs by 0.025 yuan/kwh or about 4.7 percent on average, a rise that will primarily affect industrial and commercial users, the NDRC, China's top planning body, said on its website.
The rise, effective from July 1, is its first broad increase in years and will help avert brownouts by bolstering power companies struggling with the soaring cost of coal, which generates some three quarters of China's electricity. Beijing also said it will freeze thermal coal prices, which are normally allowed to trade freely, a move traders said could prompt more exports into an Asian market now at record highs.
China's central bank governor, Zhou Xiaochuan, told reporters in Washington after two days of U.S.-China trade talks that, on fuel prices, "the direction of reform and the determination had always been there and the rest is timing."
Asked whether he feared new inflationary pressures from the oil price hike, he said only that more monitoring was needed, while analysts saw an extra percentage point added to inflation.
"When oil prices are high, consumers have to cut expenditures on other items, so demand for other products will be lower," said Gene Ma, chief economist for China Economic Monitor, a Beijing consultancy.
Chinese refiners Sinopec and PetroChina PETROCHINA CO LTDPTR, which is less reliant on costly imported crude, will get an immediate boost from the price increase as they bear most of the burden of buying expensive crude and selling their refined gasoline and diesel products at below-cost domestic rates.
China has raised prices only once since mid-2006, a 10 percent increase in November. China's rapid demand growth was one of the catalysts for oil's surge from $20 six years ago to a record high of nearly $140 a barrel earlier this week.
Protests Spread Across the Globe
Spanish farmers marched, Israeli truckers slowed rush-hour traffic and Nepali students stoned cars on Thursday, all angry at rising fuel prices and inflation that they say are crippling their economies.
Protests by truckers, taxi drivers, fishermen and farmers demanding fuel-tax breaks have spread across the world, increasing fears of political instability and a global economic downturn.
In Madrid, thousands of farmers brought traffic to a halt on the capital's busiest road to demand lower diesel tax to help cushion the blow of higher fuel costs and low producer prices.
"This is the last straw. If good spring rain hadn't arrived this year and last, we would already have gone bust," said sugarbeet farmer Evaristo Ortega. "The price of diesel and fertiliser is impossible to bear."
Diesel prices have shot up to around 1 euro ($1.56), from 60 cents a year ago, farmers said as they marched past soccer club Real Madrid's Bernabeu Stadium carrying banners reading: "For the future of our countryside".
In the United States, government data showed people drove less in April for the sixth month in a row, following record gasoline prices as more people used public transport.
In Greece, the cost of living has replaced unemployment as the top concern, unions said. Food prices have risen and motorists pay 13 percent more for fuel than a year ago and heating oil costs 38 percent more. About 2,000 Greeks protested against sharp increases in prices and demanded action from the conservative government.
But Germany and other European Union states said they would reject a fuel tax break plan sought by France to cushion rising oil prices. A senior French official said President Nicolas Sarkozy would ask EU peers to back a reduction in value-added tax on petrol across the 27-nation bloc.
In Berlin, German Chancellor Angela Merkel told parliament: "In our view, financial policy intervention, which is being discussed again and again ... should be avoided."
Swedish Prime Minister Fredrik Reinfeldt went further and told reporters that Europeans should work longer hours and pay less income tax to cope with rising prices.
"I am asking myself ... that we might ease up on income taxes to make work pay even further, so that people could react to the fact that an increase in the petrol price could be met by working some extra hours," Reinfeldt said.
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Posting #8: Thu Aug 21st, 2008 04:55 |
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Thursday August 21, 2008
Chinese stocks soar on stimulus hopes
Economist: China may unveil up to US$58bil package
SHANGHAI: China’s main stock index soared more than 7% yesterday because of hopes the government would introduce a stimulus package to boost the slowing economy and aid the stock and property markets.
Individual investors, many of whom had lost heavily during a 10-month bear market, cheered in the trading hall of a Shenyin & Wanguo Securities branch in downtown Shanghai as the index posted its biggest daily rise since April.
Vice-premier Li Keqiang said on Tuesday that China needed to increase domestic spending to keep growth on track as the global economy weakened.
He did not elaborate, but Frank Gong, chief China economist at JPMorgan Chase, wrote that China’s leaders were considering an economic stimulus package of at least 200 to 400 billion yuan (US$29bil to US$58bil) and might ease monetary policy by end-2008.
“This will include tax cuts and measures to ‘stabilise domestic capital markets’ and support ‘healthy development of the housing market’,” he said.
The Shanghai Composite Index jumped 7.63% to close at 2,523.28 points, only marginally below its intraday high of 2,523.47.
Gaining stocks in Shanghai outnumbered losers by 935 to one, with over 170 up their 10% daily limits.
Turnover in Shanghai A-shares expanded to 58.7 billion yuan.
That was still small compared with levels seen during last year’s bull run, but more than double Tuesday’s 27.6 billion yuan.
“If the package materialises, it will be very positive news for the market. And before then, the market should at least consolidate rather than freefalling,” said Xu Yinhui, analyst at Guotai Junan Securities.
Rumours swept the market that the stimulus package might include another cut in the stock trading tax, more restrictions on state-firms’ sales of stakes in listed companies, and conceivably even the creation of a “buffer fund” to buy stocks.
However, many fund managers and analysts said that with the contents and timing of any stimulus package unknown, it was unclear if the package would do much to halt a slowdown in economic and corporate profit growth. So while the market had probably found at least a short-term bottom, it was not necessarily starting any kind of extended recovery, they said.
Yesterday’s jump only returned the index to its early August levels, and it remains 59% below last October’s record peak. When the stock trading tax was cut in April, the index jumped 9.29% in a day, but then resumed its downtrend after a week.
“Some kind of correction to the market’s steep fall is reasonable, so the index may move between 2,300 and 2,600 points for a while as everybody waits to see if the positive news is confirmed,” said Chen Huiqin, analyst at Huatai Securities. — Reuters
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Posting #9: Thu Aug 21st, 2008 07:49 |
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21-08-2008: China equities: Bottoming out
by KFH Research Ltd
CHINA'S 1Q08 gross domestic product (GDP) expanded by 10.6%, higher than market consensus of 10.4%. This was the ninth consecutive quarter of double-digit growth, driven by robust consumption, strong fixed asset investments (24.6%) and exports (21.2%).
Concurrently, factory and property spending in urban areas grew 25.9% in 1Q08, after a 24.3% increase in January and February combined.
Urban disposable incomes climbed 11.5% in 1Q08 to US$627 (4,386 yuan or RM2,100), and rural earnings rose 18.5% to US$214 (1,494 yuan). Reflecting rising consumption strength, retail sales rose 20.6% in 1Q08, before climbing higher to 22% in April 08, the fastest pace since 1999.
For 2Q08, China's GDP growth stood at 10.2%, in line with market expectations, bringing 1H08 GDP growth to 10.4%. Despite the expected slowdown in the US economy, China is expected to grow by 10.1% in 2008.
The economy is remarkably resilient. 2008's growth is only marginally slower from 2007's expansion of 11.2% but in line with its five year average growth rate of 10.2%.
Corporate earnings growth is expected to reach approximately 20% on higher sales as consumer demand strengthens and improvement in net earnings as margin expands on higher operating efficiencies. This is expected to bolster performance of the equities market over the next twelve months.
In the equities market, concerns about an over-heated economy and over-valuation have sent Chinese equities to trade at historical lows. In mid-2005, Beijing implemented a series of equity-market reforms that ignited a firestorm of buying that lasted over two years.
The Chinese market peaked on Oct 16, 2007, in what could only be described as a bubble. The price-to-earnings ratio at that time was a stunning 46 times earnings, unsustainable and concerns mounted about overheating, rising interest rates and higher inflation.
On June 30, 2008, the Shanghai Composite Index traded on 20.3 times earnings, markedly lower than its historic high of 52.8 times earnings in September 2007. It appears that Chinese equities have once again become relatively attractive. The Shanghai Composite Index has fallen by 50.6% from its all-time high of 5877.2 points and 49.3% from its 2008 high of 5731.76 points.
In our view, given that most if not all of the "bad news" have been priced into Chinese equities, the downside risks appear to be limited. We are of the opinion that the current scenario represents a golden opportunity for investors to accumulate high-quality stocks with commedable earnings growth potential and above-trend dividend yields. These stocks will likely outperform in the three to five year investment horizon.
While risk to earnings growth are omnipresent, after the sharp correction and historically low valuation, the risk-to-reward ratio appears attractive.
As the stock market is a forward discounting mechanism, the sharp fall experienced by the Shanghai Composite Index in 1H08 may well reflect the slower growth expected from Chinese companies.
Fear of a US recession, brought about by the subprime mortgage fallout, have left investors wary of the growth prospects for the Chinese economy and by extension earnings growth potential for Chinese companies. Valuation for Chinese equities based on price-to-earnings multiple have compressed to its low of 20.3 times in June 2008 from its height of 52.8 times in September 2007.
The lower valuation is reflective of slower earnings growth relative to historical levels and also lower investor appetite for Chinese equities in line with the sell-off in global markets.
Despite demanding valuations, corporate earnings growth is estimated to be robust over the next 12 months, justifying the high valuation that it currently commands. China's equity markets are on a clear upswing, driven by a better outlook and strong financial results.
Earnings in China continue to grow strongly. Especially notable were Chinese banks' earnings that grew 70%-100% for the first quarter of 2008. This is in stark contrast to the devastating declines experienced by financial companies in the US in the same period.
Chinese companies within the index have an aggregate double-digit earnings growth of 23.4% on higher sales emanating from domestic demand. Meanwhile, in Hong Kong, corporate growth for index member companies is estimated to decline marginally due to cost pressures and hence lower margin and profitability.
CSI 300 Index's relationship with DJIA
A comparison with China's largest trading partner's equities benchmark index reveals that its movements have been in lockstep. Both the CSI 300 Index and the DJIA hit their highs in October 2007 and has since retreated from their lofty levels. This indicates that China's dependence on the US remains both in trade and the equities market.
Going forward, it is not impossible to expect Chinese equities to recover sooner than its US counterparts as the retrenchment level in Chinese stocks to nearly 50% from its peak have exceeded US' 20% fall in the past 12 months. Moreover, robustness of corporate earnings growth will likely bolster performance of Chinese equities, barring excessively weak investor sentiments.
Chinese stocks trade at a premium to US stocks. On average, blue-chip US stocks are valued at 13.5 times earnings, while large-cap Chinese equities are valued at 18.5 times earnings.
The valuation gap is prevalent due to stronger corporate earnings growth at Chinese corporations, which are estimated to register growth at an average of between 20% and 30% vis-à-vis US corporations' sub-20% growth.
Hence, a strong return of investor sentiment and money flow will likely result in the increase of appetite for Chinese equities in the long-run.
Chinese versus Indian stocks
India's Sensex Index outperformed the CSI 300 Index between July 2005 and March 2007 as Indian corporations' earnings growth potential outpaced that of Chinese companies during the period.
Since then, the relationship has changed and Chinese equities outperformed between March 2007 and December 2007 before turning over the leadership to Indian equities in 2008.
As the Chinese market experienced more volatile trade in 2007 as opposed to the Indian market, Indian equities managed to outpace Chinese stocks as investor interest turned to undervalued markets.
Over the past 12 months, valuation gap between Chinese and Indian equities has narrowed. The price-to-earnings multiple gap between Chinese and Indian stocks now stands at 7.1 times from its height of 20.9 times in September 2007.
The narrowing of the gap suggests a premium compression between Chinese and Indian equities as China's economic growth stalls from its height of 11.3% year-on-year (y-o-y) growth in 2007 to about 10% in 2008.
Also, corporate earnings growth for Chinese equities is now estimated at 20% from between 30% and 50% in 2006 and 2007, which explains the narrowing of the valuation gap.
Blue-chip Chinese stocks are trading at a discount vis-à-vis the benchmark index. Top-notch corporations with market capitalisation of more than US$50 billlion such as PetroChina, China Petroleum and Bank of China trade at price earnings multiple of less than 15 times, while the CSI 300 Index is trading at 21 times earnings.
China Merchant Bank and China Shenhua trade at above-market earnings multiple at 22.7 times and 23.1 times respectively, signalling that investors are willing to pay a premium for these two stocks.
Earnings growth for Chinese stocks are estimated to exceed 20% in the next 12 months and thus with price earnings multiples of less than 21 times, Chinese stocks appear to be attractive relative to growth potential.
Large-cap Chinese stocks have plunged by nearly 50% year-to-date and coupled with superior earnings growth potential, this represents a good opportunity for investors to accumulate for the long-term horizon.
In comparison, Indian companies with market capitalisation of more than US$50 billion are trading as low as 8.9 times earnings as corporate profits are estimated to be more robust.
Indian stocks have only fallen by an average of 25.4% as opposed to 46.6% drop for Chinese stocks as Indian corporate earnings growth remains resilient on robust domestic demand and strong growth in the middle-income market segment.
Going forward, corporate earnings are expected to remain robust and act as a catalyst for equities' outperformance.
We expect Chinese equities' underperformance in 1H08 to reverse in 2H08 due to attractive valuation relative to potential corporate earnings growth.
Chinese companies are estimated to register double-digit growth thanks to strong demand and improving operating margins. In addition, consumer spending is expected to remain strong on the back of rising per capita income and disposable income.
Chinese equities used to trade at a premium relative to its BRIC counterparts, a testament to its long-term growth story, in our view.
This can be justified by the estimated earnings growth of circa 20% over the next 12 months. This is expected to attract investors back in 2H08 after a period of dismal performance in 1H08 amidst a global sell-off.
We believe that investors with healthy risk appetite and longer-term view should consider investing in Chinese equities as valuations are appealing against potential earnings growth.
The recent sell-off and dismal performance year-to-date are also factors to consider entering the market as downside risks appear to be limited and risk-to-reward ratio improves over the longer term.
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MooFassa
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Posting #10: Tue Oct 21st, 2008 07:19 |
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21-10-2008: China's growth miracle ends, says Moody's Economy.com
by Moody's Economy.com
KUALA LUMPUR: China's growth miracle has finally ended, with September quarter gross domestic product (GDP) rising a paltry 9% year-on-year, said Moody's Economy.com.
Moody's Economy.com economist Sherman Chan said the sharp deceleration in growth, which took may by surprise, signaled a slowdown in job crea | | |
