Stocks to Watch: Nine well-run companies could be winners in post-WTO China
By YULANDA CHUNG and ALEXANDRA A. SENO
Liu Yang boldly goes where other fund managers fear to tread. More than half the assets of her Sydney-based China Fund are Shanghai- and Shenzhen-listed B-shares that, until recently, only foreigners could buy. Most analysts spurn them because they think the companies are badly managed. Not Liu, a graduate of Beijing's Central University of Investment and Banking who worked for Chinese giant CITIC before moving to Australia in 1993. "They should study the companies more closely," she says. "Sure, B-shares are risky, but the returns can be very high." Her fund hit the jackpot last month, when China unexpectedly opened up B-share trading to locals. The B-share index sky-rocketed — and China Fund's net asset value jumped by more than a third to $50 million.
The B-share frenzy is reminiscent of the red-chip mania in 1997, when Hong Kong-listed China stocks soared to amazing levels — then crashed as the companies failed to deliver on earnings and corporate governance. But fund managers and analysts are still excited about some of the 113 B-share companies, 1,100 A-shares (which are open only to local investors), and 100 or so firms listed in Hong Kong and New York. They often mention nine well-managed corporations as the most likely winners when China becomes a member of the World Trade Organization.
Only one B-share makes it to this select group. Equities analysts see Shenzhen-listed China International Marine Containers as a prime beneficiary of WTO membership. The Guangdong-based company makes dry and refrigerated containers that ships use to transport goods. Demand for its products can zoom with the expected surge of imports after China enters the WTO, even if export volumes were to fall because of a recession in the U.S. "It's a player in both the transport and the consumer sectors," says Liu, who considers China Marine one of the better managed B-shares.
Beijing Capital International Airport is another WTO play. Called an H-share because of its listing in Hong Kong, the company operates the international passenger and cargo airport in the Chinese capital. "It's a [well-run] monopoly and monopolies always make money," says Vincent Chan, an analyst at UBS Warburg in Hong Kong. Two other H-shares, mini-bus maker Brilliance China Automotive and car-assembler Denway Motors, are riding China's rising consumer affluence. Also listed in Hong Kong, investment group China Everbright is a play on the mainland's burgeoning banking and financial sector, including the sixth-largest lender, unlisted China Everbright Bank.
China Mobile, a constituent of Hong Kong's Hang Seng index, operates cell-phone services in 13 Chinese provinces. "Mobile-phone penetration in China is still at a mere 6%," says Martin Lau, a fund manager at Invesco. China Mobile's stock price recently fell over fears that a new pricing scheme will cut revenues. But Kelvin Tang, a fund manager at Tai Fook Securities in Hong Kong, says the worries are overblown and sees the selldown as a buying opportunity. More transparent than other state-owned giants because it is traded in Hong Kong and New York, PetroChina is the mainland's largest producer of crude oil and natural gas. "It's doing what is needed in terms of cost-cutting [to become more competitive]," says Chong Yoon Chou of Aberdeen Asset Management in Singapore.
Competitive utilities are seen as WTO winners, too. Kalina Ip, a top-ranked analyst at ABN AMRO, likes Hong Kong-listed Shandong International Power. "Electricity demand in China is growing at 6% while supply is expanding at only about 4%," she notes. Yanzhou Coal Mining is another favorite. "Its operating costs are much lower than its Australian rivals," says Chong. "And it has high-quality management." WTO membership will bring in badly needed foreign direct investment, but it will also open the floodgates to cheap imports. These nine companies have a good chance of winning the coming WTO wars.
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