Out Of The Wok Into The Fire
A key indicator of economic development in industrialised countries used to be the growth in household fixed line telephones – in China it is the mobile phone and numbers of investors.
The stock market bounce in February is but a distant memory with brokers and managed fund operators registering a mind boggling 200,000 new investors a day.
Add to this the whopping 20 million new mobile phone subscriptions added in the first quarter of 2007 and by all accounts the Chinese economy is behaving like Keith Richards on a ‘take no prisoners’ drug fuelled bender.
There are now more than 91 million investor accounts with brokers and managed funds in China.
As for mobiles, there are almost half a billion (480 million) mobile phone accounts in China today – a staggering number, although it doesn’t equate to one in three people as many people have more than one account.
On average in China, every 100 people account for 35.3 mobile phones and 28.1 fixed-line phones, according to the Ministry of Information Industry (MII).
Whichever way you try to comprehend it the numbers are astounding when aggregated.
However, China is facing serious risks when it comes to retail investing.
There are reports of investors taking out loans from loan sharks in order to put money into stocks and shares – a crude form of margin lending – with the belief the returns from soaring stock prices will outstrip any costs borne from borrowing the capital.
However lack of investor experience and education is likely to mean it ending in tears for many investors.
After the minor correction in February, which sent ripples through global markets, shares on the mainland’s Shanghai composite for its A-share stocks have swollen some 40 per cent – resulting in the average stock price trading at a death-defying 50 times price to earnings multiples.
Authorities and key figures are all talking about investors having ‘cool heads’ and not behaving irrationally, however does anybody else have the feeling they’re watching a car accident happening in slow motion?
It seems all the talk and bit-part measures to avoid a severe bubble burst in China – be it in the stock market or property market – appear to be having a negligible impact as the economy rolls forward irregardless.
2 Comments on “Out Of The Wok Into The Fire”
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Norman says:
Hi Rob,
The follwoing is drawn from a story in the the China Daily last week – and makes reference to the PE multiples of 50.
“It is widely believed that mainland investors are mostly momentum-driven and ignorant of valuations, but they can see the IPO market is serving up a bargain. While stocks in the A-share market trade at stiff premiums to Hong Kong, dual-listed equities often continue to list at a discount in the mainland.
The situation is due to the influence of the powerful China Securities Regulatory Commission (CSRC) which micromanages new listings, sets final pricing of IPOs and subsequent fund-raisings as well as deciding who gets to list, analysts said.
For example, Bank of Communications recently listed at 7-20% cheaper in Shanghai than in Hong Kong, following a similar practice for China Life Insurance and Ping An Insurance.
In most other competitive markets, pricing is a commercial compromise based on what companies think they can get and what investment banks think the market can take.
A standard move these days is for the CRSR to force companies to set a lower price on their IPOs in the hope of a strong stock market performance. This has undoubtedly contributed to the general market euphoria. The average price-to-earnings ratio of Shanghai and Shenzhen markets is now over 50.”
Craig Phillips – burningpants
Rob Keavney says:
Can you please provide me with the source for Shanghai PE or 50?
Thaks,
Rob