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Gold/Mining/Energy : An obscure ZIM in Africa traded Down Under -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (785)	5/2/2003 4:32:19 AM
From: TobagoJack	Read Replies (1) \| Respond to of 867

Commentary: Buffett's vote of confidence in China William Pesek Jr. Bloomberg News Thursday, May 1, 2003 iht.com Warren Buffett's search for cheap stocks has brought him to a surprising place: China. A month after telling Berkshire Hathaway shareholders that shares of U.S. companies were too expensive, Buffett's company upped its stake in PetroChina. It is an intriguing move for a man not known for risky foreign investments. You would think China's dodgy corporate governance, fragile financial system and questions about social stability would keep value investors like Buffett away. China's crisis with severe acute respiratory syndrome could be another cause for concern. But that has not stopped Berkshire Hathaway from raising its stake in China's largest oil producer to 13.35 percent, making it the No. 3 investor in the company's traded stock. While Buffett is always reluctant to explain his investments, we can surmise two things from the move. One, some of China's biggest companies are trading cheap. Two, Buffett is gaining confidence in China as a long-term investment. The 72-year-old billionaire is not a big fan of emerging-market investments - unless he is getting a real bargain. One could argue PetroChina is such a stock; as of last week it was trading at 6.3 times its estimated earnings this year. By comparison, Exxon Mobil and BP were both trading at 17 times estimated earnings. The bigger question is whether Buffett is right to view Chinese companies, or China in general, as a good long-term investment. While the answer is many years away, the significance of Buffett's PetroChina stake should not be lost. It will sway other investors to follow suit. That could be a huge plus for China's economy, and investors in it. Buffett's buying and selling decisions often attract a piggyback dynamic, whereby peers do what he does. That may not have been the case in the late 1990s, when Buffett was dismissed as a dinosaur for not riding the dot-com boom. Now that he has been vindicated by the subsequent meltdown in technology shares, China could see other big investors come its way. Buffett has a huge following in Asia. He is to stock investors what Li Ka-shing, the Hong Kong billionaire, is to entrepreneurs: a role model. Buffett's interest in China is already garnering lots of attention. PetroChina's shares on Monday enjoyed their biggest one-day gain since July. China may be the world's hottest destination for foreign direct investors, but so far institutional investors have steered clear. Last December, China opened its $500 billion stock market to overseas institutional investors. They have not exactly broken down the doors to get in amid worries about corporate governance and regulatory issues. By endorsing PetroChina, which produces two-thirds of the country's oil and sells 80 percent of its natural gas, Buffett could spur interest in its local energy rivals such as CNOOC and China Petroleum Chemical as well as other Chinese stocks. Investors like Brook McConnell, president of South Ocean Management, for example, have taken note. He says he is now "scrambling to do more research" on PetroChina and other Chinese companies. Could Buffett be signaling a turning point in sentiment toward China? Perhaps. While foreign investors are wary of China even in the best of times, its efforts to hide the scale of the SARS epidemic within its borders have caused a global backlash and spooked markets. If Beijing will not report properly on a non-ideological public health issue like disease, investors wondered, how could they expect to get reliable information on companies and the economy? Buffett and other investors also need to watch China's economic foundations. Its growth comes from two sources: public spending and foreign direct investment. If Beijing stops spending or investment dries up, the economy shrinks. The rising number of bad loans at the four state-run banks raises questions about how much longer it can finance the boom. And of course the concerns raised by the SARS epidemic threaten to seriously dent foreign investment. But with the U.S. economy walking in place, and many investors believing that for all its problems, many U.S. stocks are expensive, the Buffetts of the world are looking for new buying opportunities. Japan remains in a deep funk and European growth is slowing. China's allure is clear: growth exceeding 8 percent, dynamic cities, a rapidly expanding population and an emerging middle class hungry to display its new wealth. China also is the world's fastest-growing energy market - hence the appeal of PetroChina's shares. Growth in other sectors could be brisk, too. It may not be a smooth ride for investors, given China's challenges, but Warren Buffett may be on to something here.