FXI
Chinese giants
Friday August 31, 2:30 pm ET
It is said that the Great Wall of China, built more than 2,000 years ago, can be seen from the moon. More recently, the country's super-sized stocks have become highly visible too.
Following an 18-month rally, the total universe of mainland Chinese stocks, including those listed in Hong Kong, now stands at some $5,000bn, eclipsing the Japanese market. Chinese companies have taken the number one slot in large parts of the global economy. Measured by market capitalisation, the world's largest bank is Industrial & Commercial Bank of China (at $280bn), while the biggest telecommunications group is China Mobile ($260bn), and China Life and Air China take the top slots in insurance and aviation respectively.
Being big has, well, big advantages. Fund managers are unlikely to trawl through Thai fish processors when they can just buy a Chinese Godzilla and match their peers' performance. Even Chinese companies are playing fund manager, by buying shares in other companies on the basis that this will bloat earnings faster than plant expansion (even if it means the market collapse, when it comes, will deliver a double-whammy).
But are China's corporate giants quite as mighty as they look? Dual listings in Hong Kong and China muddy the waters. If all of ICBC's shares were at the same price as its more actively traded Hong Kong-listed stock, it would have a market cap closer to $217bn, below both Citigroup and Bank of America. Based on its Chinese share price, ICBC is valued at 31 times estimated 2007 earnings, or 23 times based on the Hong Kong price (as against 10 times for Citi).
It is also worth remembering that 17 years ago, Japan, with a stock market accounting for about half of global market cap, inspired similar awe. Today its share has shrunk to 8 per cent and, cars and electronics apart, it has few global giants. With valuations this heady-s China's rankings look less stable than the Great Wall.
biz.yahoo.com |
