The Chinese stock market, and its underlying economy, has been sizzling the last couple of years, but there are some signs this has reached a peak, at least for awhile.
The Shanghai Stock Exchange (A Shares) Index, which reached a high this year of 6,124.24, recently closed at 4,192.53. Its year low has been 2,723.06, but the Shanghai Index was only trading in the 1,500 range as recently as two years ago. With a steaming economy, still growing at an annual 8% rate (down from 11% recent annual growth rate), China’s growth prospects obviously remain good. But has it been too much too fast?
One sign of the growth spurt at least temporarily topping out is that some high-profile scheduled initial public offerings have been scaled back. The state run Beijing-centered China Railway Construction Corp. (OTC: CRWOF), which had planned a hefty share offering in an attempt to raise $3.1 billion (22.25 B yuan), has scaled this back to 2.45 billion shares from an originally planned 2.8 billion share public offering. It is scheduled to be priced at $1.12-$1.26 a share, or 8 to 9 yuan. This was to be followed by a separate offering after March 10 on the Hong Kong Hang Seng Index of 1.7 billion shares. Many mainland China companies trade on both the Shanghai Exchange and the Hong Kong Exchange.
China Railway Construction has built the new Qinghai to Tibet railway through the Himalayans as well as the Beijing to Hong Kong line and its modern magnetic levitation rail. According to state run news agency Xinhua, the company has assets of $21.7 billion (155 billion yuan.) Other major Chinese companies, some already publicly traded, are planning additional debt and equity offerings, such as Shanghai Pudong Development Bank (OTC: SHVPF) and Ping An Insurance (OTC: PIAIF). Some $56 billion (400 billion yuan) of already held shares of various companies will also become unlocked, or tradable, after March 10, which will also flood the market.
One noted expert on investing in China, legendary investor Jim Rogers, who first became famous while working for George Soros and later on his own with his unique investing style in stocks, currencies and commodities, is so bullish on Asia long term that he moved his family to Singapore. Rogers, who has written a book extolling the long range prospects of China, titled “A Bull in China: Investing Profitably in the World’s Greatest Market” (Random House, 2007) did caution that near-term China may be overbought and needs to consolidate what has been a period of super-fast growth. But it does not appear to be a bubble, unlike the hyper-inflated property boom of 2007 which took place in nearby Hong Kong.
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