The Beijing Times reports sovereign wealth fund China Investment Corp will suspend investments in overseas financial companies due to high investment risk, citing Wang Jianxi, a CIC executive vice-president, pictured here.

Wang Jianxi said, ‘As sovereign wealth funds have low risk tolerance, investment in overseas financial assets, such as Blackstone and Morgan Stanley , will be suspended.’

He said the CIC had invested less than half of the money it planned to invest abroad. After all planned investments are made, the ratio of high-risk financial assets will be diluted, accounting for a small portion of overall investment.

The CIC paid $3 billion for a 10% stake in the Blackstone Group in May ahead of the private equity group’s initial public offering at $29.605 per share. Those shares, which are still locked up, are now around $15.

Wang Jianxi said the CIC does not pay much attention to short-term price fluctuations as the company has made a long-term financial investment into Blackstone and Morgan Stanley. WHich, given the prices, is just as well.

He added, ‘We can make a gain not only from the stock price. And we can also achieve investment gains from dividends.’ The fund has started to pay interest on bonds issued by the Ministry of Finance to fund its start-up.
Source: CNN Money

We are certainly going to see a fair amount of this. Changsheng China Property said it will not proceed with its planned Hong Kong initial public offering (IPO) due to market volatility.

Changsheng said it will review its position in regards to relaunching the IPO.

Maoye International, a mainland department store firm, confirmed that it will not proceed with its Hong Kong IPO due to adverse market conditions.

Maoye, based in the southern Chinese city of Shenzhen, said in a statement to the Hong Kong stock exchange today that it will review when to relaunch the sale, which would have been the city’s largest IPO by a Chinese department store operator.

Market sources say alternative energy firm Solargiga Energy and civil engineering firm SFK Construction also put off their share sales. And the list continues.
Source: Forbes and Bloomberg.

For the 10th time this year China will order banks to raise the amount of reserves they keep on hand in order to curb inflation and prevent the economy from overheating.

The central bank said it had ordered banks to increase the reserve ratio by a full percentage point, to 14.5%, in an effort to curb lending. It was the largest single increase in the reserve ratio in four years.

Analysts said the move showed that Beijing was growing increasingly worried about growing inflationary pressure and the threat of a meltdown before next summer, when Beijing is set to hold the Olympic Games.

This year, a fast-growing economy has taken flight, growing by as much as 12% with China piling up another year of record trade surpluses with the rest of the world, particularly the European Union and the United States.

China is under mounting pressure to appreciate its currency, which some economists say may help ease those trade gaps and better balance the global economy. But China has largely resisted that pressure, saying it has already allowed its currency to gradually appreciate, up about 10% since 2005.

Over the past few years, Chinese stock prices have risen more than 300%, investor frenzy has turned mad and initial public offerings have created more than 100 new billionaires, at least on paper.

In a report, Hong Liang, an economist at Goldman Sachs, said the larger-than-usual increase in the reserve ratio should strengthen the credibility of the central bank but could also hurt share prices.
Source: International Herald Tribune

China’s world-beating rally might be a “bubble” ready to burst, said Alan Greenspan, the former U.S. Federal Reserve chairman, and he is supported in this view by Li Ka-shing, Asia’s richest man. The billionaire investor Warren Buffett, chairman of Berkshire Hathaway, last month urged investors to be ‘cautious.’

Tim Leung, a fund manager at IG Investment in Hong Kong, said, ‘If there is a slump in China, the risk of investing in some companies whose earnings are closely linked to the market will increase. When there is a slump in the market, retail investors do much less trading.’ Tim Leung said he did not own China Finance shares.’

All this because China Finance Online may lose its rank as the best-performing foreign company listed in the United States.
American depositary receipts for the company, China’s biggest provider of online financial data, have dropped more than 30 percent this month, as the nation’s benchmark CSI 300 index fell 12%.

Li Ka-shing, chairman of Hutchison Whampoa, said in May that the Chinese stock market ‘must be a bubble.’

Asked if China was in a state of ‘irrational exuberance,’ Greenspan told a conference of insurance executives in Boston on Oct. 30: ‘I think so.’
Source: International Herald Tribune

The Shanghai Stock Exchange is considering listing large multinational companies.

Que Bo, assistant general manager of the Shanghai Stock Exchange, told a conference on China’s capital market that the stock market was ‘doing market research for the plan and will get some results soon. To strengthen the blue-chip market, we have been planning to list such multinationals as HSBC, Coca-Cola and Siemens, which have developed very well in China.’

Que Bo said the Shanghai Stock Exchange would continue to lure more large domestic firms into the market and draw Hong Kong H-shares and Chinese firms registered and listed in Hong Kong, better known as red chips.

He also said the exchange would not only expand but also strengthen the blue-chip market, which was essential to sharpening the competitive edge of China’s capital market. In addition to the Hushen 300 index futures, the Shanghai Exchange planned to introduce more financial derivatives to bolster the blue-chip market.
Source: Windows of China

There are various ways of measuring the size of a company and one is market capitalization. On that basis PetroChina is now the biggest company in the world. It is also the first trillion US dollar business.

This came about because the stock was part of an IPO, an initial public offering, on the Shanghai Stock Exchange. The shares were oversubscribed about 50 times and the price immediately soared to 2.6 times the initial offering. (The thought arises that someone should seriously inquire how the stock came to be put on the market at such an under-valued price. And whether there were any major stock sales made before the public offerings were made.)

This is all part of an astounding surge on Chinese stocks where, in a year, share values in Shanghai and Shenzhen have risen 170%.

Using this as a guide the top ten companies in the world now include five corporations owned by the government of China and only three firms from the United States. The two others are the Russian Gazprom and Royal Dutch Shell which is Dutch-British.

However, this is not the time to break out the champagne. If you use another way of measuring you come to different figures.

You work on the number of times earnings in order to find a company’s worth. In publishing, the figure used is typically eleven times although allowances are made for special circumstances. The American Standard and Poor’s measurement. which is widely used although thought by some to be a tad conservative, uses an average of 16 times annual profit.

The leading Chinese index of the top 300 listed corporations has them valued at 43 times earnings.

Or you can look at a seriously canny investor, Warren Buffett. He is always in the top five richest people in the world and is big mates with Bill Gates. He sold out all of his PetroChina holdings. And, not incidentally, made 800% from his initial investment which was around US$488 million. He was attending a conference in Dalian last week and warned that the Chinese share market had become ‘too hot’ even for him.

Although one knew of the growth and growth of China and its exports it comes as a surprise to read that China Life Insurance has passed AT&T in market value, giving China five of the world’s 10 largest companies. The United States only has three.

Allowance must be made for the fact that many, most?, of the world’s financial analysts says China’s stock is overvalued but it it nevertheless astounding to see that in the area by which the United States judges the rest of the world — the stock market — China reigns supreme.

China’s stock rally has almost tripled its benchmark index this year. China’s households are pouring more of their $2.3 trillion savings into shares to beat inflation, which exceeds the return on bank deposits, and to profit from the world’s fastest growth among major economies.

Beijing-based China Life, the nation’s largest insurer, gained 1.1% in Hong Kong and added 6.7% in Shanghai valuing the company at RMB1.94 trillion yuan, or $259.1 billion.
China Life, PetroChina Co., China Mobile, Industrial and Commercial Bank of China and China Petroleum and Chemical are now in the list of the world’s 10 biggest companies by market value.
However, as an indication to the skew in valuations only two of those are in the top 50 by sales.

The CSI 300 Index, which tracks shares traded on the Shanghai and Shenzhen stock exchanges, has risen 170% this year, the best performance among 90 global benchmarks tracked by Bloomberg. Hong Kong’s Hang Seng Index, which is dominated by Chinese companies, has gained 58%.

Only China Petroleum and Chemical, or Sinopec, and PetroChina are among the world’s biggest 50 companies by revenue.

Investors pay 78 times estimated full-year profit for China Life in Shanghai and 42 times in Hong Kong. That compares to 9.3 times for New-York-based American International Group, the biggest U.S. insurer, and 8.4 times for Europe’s largest, Munich-based Allianz.

China’s CSI 300 benchmark is valued at 43 times estimated earnings, compared with the average 29 times for Chinese companies on the Hang Seng China Enterprises Index, according to data compiled by Bloomberg. In the U.S., home to the world’s biggest stock market, the S&P 500 Index is valued at 16 times.

Fraser Howie, co-author of the book Privatizing China: The Stock Markets and Their Role in Corporate Reform, said, ‘Chinese companies are far too expensive from any rational measure. It’s a bubble and in a bubble things are priced wrongly.”

Leslie Phang, who helps manage $1 billion at Commonwealth Private Bank in Singapore, said, ‘It’s pretty unnerving. It’s all building into one big bubble. The Chinese companies are trading on euphoria.”

On the other hand Marc Faber, who manages $300 million at Marc Faber Ltd. in Hong Kong, said, ‘European countries were also surprised at the beginning of the 20th century when American companies overtook European companies. The world better get used to it.’

Source: Bloomberg

Ronald Arculli, shown in our illustration, the chairman of Hong Kong Exchanges and Clearing, the company that owns the local exchange, has made no secret of the fact that closer integration with the booming exchanges of Shanghai and Shenzhen — up 120% and 175% respectively this year — and tapping the huge savings of Chinese investors is vital to future prosperity for one of the world’s great financial centers.

In an interim results report for the first half of the year Hong Kong Exchanges and Clearing noted that of 32 listing applications, 23 were from mainland companies.

Mainland listings and relaxed rules on China’s outbound investment have been big contributors to a profit surge for the company: first-half profit more than doubled to about $30 million, compared with the same period last year. Average daily turnover on the exchange was 82% higher than last year.

That is not to say that the idea is welcomed with open arms in China. A report by CLSA Asia Pacific Markets released last month said:

‘There is a sense among some people that Hong Kong can be cast aside as soon as the larger national system gets up to speed, which is why there are sentiments that Shanghai will take over Hong Kong’s role as the premier financial center one of these days.’

On Sept. 7, the Hong Kong government announced that it had lifted its holdings in the Hong Kong exchange to 5.9%. The reason for the acquisition — above a threshold that normally requires regulatory approval — was to support the exchange’s ’strategic development,’ the government said in a statement.

This is a long and interesting article and well worth reading in full. Click on International Herald Tribune below.
Source: International Herald Tribune

Market prices for some top Chinese companies have achieved the status of Gucci or Louis Vuitton in relation to their global counterparts; in many cases, they are the most expensive items on the shelf for equity investors.

Garry Evans, an Asia-Pacific equity strategist at HSBC, detailed this sudden change of pricing power commanded by Chinese stocks, as ‘China Rules the World’.

Going a bit far but in financial circles let there is a lot of truth in the title.

Chinese companies can now claim the world’s largest market capitalizations in banking, insurance, telecoms and airlines. In many other industries — securities brokerages, real estate, oil, and steel — the top Chinese companies lead in global rankings.

China’s largest bank, the Industrial and Commercial Bank of China, has swiped from Citigroup the title of the world’s largest bank measured by market capitalization. ICBC, at $333 billion, is 42% larger than than Citigroup’s $235 billion, and at 29.6 times estimated price-to-earnings ratio it is more than twice as expensive than Citigroup.
At a market capitalization of $246 billion China Life, the world’s largest life insurer by market value, is worth more than any of the largest North American insurers.
In the telecoms industry, China Mobile leads the world with a $346 billion market capitalization. AT&T is 36% smaller.
In aviation, Air China, is worth more than the combined value of two far more respected Asian rivals, Singapore Airlines and Cathay Pacific.

Evans attributed these astronomical valuations to a recent rapid run-up in Chinese stocks. The Hang Seng index — the benchmark for the Hong Kong market, where all the biggest Chinese companies are available to foreign investors — is up by 42% since August’s bottoming out in the midst of the global liquidity rout.
Source: Forbes

China may prevent foreign investors from taking control of domestic brokerages. This will be seen as a setback to Wall Street which would like to control the world especially the world’s fastest-growing stock market.

It is probable overseas companies will be limited to owning stakes in publicly traded brokerages, with the foreign holding capped at 20%.

The China Securities Regulatory Commission has submitted the draft rules to the State Council, the nation’s highest decision-making body.

Goldman Sachs Group (seen here) and UBS are the only global securities firms that control investment banking units in China, where 47 million new stock trading accounts have been opened this year.

It appears this new ruling will not be retroactive so they are safe. But the new rules would prevent rivals such as JP Morgan Chase and Merrill Lynch from obtaining controlling stakes in China’s brokerages.
Source: Bloomberg