Warren Buffett, Sage of China Too?: William Pesek Jr. (Update1)
Aug. 28 (Bloomberg) -- Warren Buffett, Sage of China?
It may be time to add this to the list of nicknames by which the Sage of Omaha is known. That's because the world's second- richest man made a big -- and, as we learned yesterday, profitable -- bet on China this year.
It all began in March, when Buffett told Berkshire Hathaway Inc. shareholders U.S. stocks were too expensive. The search for cheaper ones brought a man not known for risky international plays to a surprising place: China. In April, he began acquiring shares in PetroChina Co., the nation's biggest oil producer.
Buffett's moves are often subject to banner headlines and copycat investing. Yet his bet on PetroChina inspired more intrigue than usual -- and it may continue to do so.
Berkshire Hathaway is now PetroChina's third-largest shareholder with 13.35 percent of its traded stock. That's stellar news for Berkshire Hathaway's shareholders, considering the oil producer's shares are up more than 58 percent this year.
A what-did-he-know-that-we-didn't? buzz is bound to accompany any positive return Buffett makes on an investment. But that's especially so when the gains are in an unconventional investment. And China, for all the attention and good press it receives, can still be very much that.
Institutional Investors
The rush to invest in China features a who's who of globalization's biggest players: Allianz AG, Carrefour SA, Citigroup Inc., Coca-Cola Co., Eastman Kodak Co., General Motors Corp., Honda Motor Co., Hutchison Whampoa Ltd., Michelin & Cie., News Corp., Siemens AG, Sony Corp., Wal-Mart Stores Inc. and so on. Name a company and, chances are, it's scurrying to the mainland to benefit from cheap labor and land.
But institutional investors have been far more skeptical. China's dodgy corporate governance, fragile financial system and questions about social stability are putting off many shorter-term folks as it opens its economy.
Hence the significance of Buffett's bet on PetroChina. To inquiring financial minds everywhere, it meant one of the world's most astute investors was gaining confidence in China's outlook. Buffett, after all, has rarely been an emerging-market enthusiast, unless he's getting a real bargain. His interest in China is sure to sway other big investors to follow suit.
Fueling PetroChina
One could argue it already has. Prior to news in April that Berkshire Hathaway was accumulating its shares, PetroChina was up 7 percent. Some of its powerful gain since can be attributed to a riding-Buffett's-coattails dynamic.
Yet it's not all Buffett. PetroChina's first-half profit doubled to 38.6 billion yuan ($4.66 billion), the fourth-highest by any publicly traded oil company so far. Many analysts argue that Buffett merely shone a spotlight on a company to which investors should be paying attention.
It's not clear PetroChina will be able to extend its first- half performance. Profits jumped as global crude oil prices rose and the state-owned company deepened cost cuts by firing workers and modernizing factories. If oil prices decline as war-torn Iraq boosts output, PetroChina's earnings could take a hit.
Still, all this raises a couple of valid points about China's rise. First, it shows that despite questions about China's economy, some companies there are offering gains for foreign investors. Second, it's a reminder of the extent to which Asia is back on investors' radar screens.
Nibbling
U.S. fund managers are increasingly nibbling at Chinese shares. Wellington Management Co., which manages some Vanguard Group funds, now owns about 7.2 percent of Hong Kong-traded shares in China Petroleum & Chemical Corp., or Sinopec, Asia's biggest refiner.
China's allure is clear enough: 8 percent growth, vibrant cities, a rapidly expanding population and an emerging middle class hungry to amass wealth. It's also the world's fastest- growing energy market -- hence the appeal of PetroChina's shares. Growth in other sectors could be brisk, too.
Of course, it may not be a smooth ride for investors, given Beijing's challenges. But China finds itself at the center of Asia's return to favor with global investors.
For all the excitement over a U.S. recovery, the Dow Jones Industrial Average is up less than 12 percent this year. The MSCI Asia Pacific Index, a regional benchmark, is up more than 18 percent. Thai stocks are up more than 55 percent in U.S. dollar terms, while Indonesian shares are up more than 31 percent.
Buffett has redeemed himself since the late 1990s, when he was dismissed as a dinosaur for not investing big in Internet stocks. His skepticism was vindicated by the eventual meltdown in technology shares.
It's too soon to tell whether the Sage of Omaha proves to be the Sage of China, too. But his interest in China -- and initial success there -- is sure to bring more investors along for the ride.
Last Updated: August 28, 2003 02:48 EDT quote.bloomberg.com |
