Tag Archives: SCHOMP

The Chinese Begin to Worry

12 May

We all know that the Chinese market has retreated 21% since its peak on 23 November 2009.  But here’s something interesting…the gap between A- Shares traded in Shanghai/Shenzhen, and H-Shares traded in Hong Kong is at its lowest level since December 2006.  The premium is currently about 6.27%.  At its height it was over 200%!

See the chart below taken from Bloomberg:

Let’s start with some definitions, courtesy of Investopedia.com

What Does H-Shares Mean?
A share of a company incorporated in the Chinese mainland that is listed on the Hong Kong Stock Exchange or other foreign exchange. H-shares are still regulated by Chinese law, but they are denominated in Hong Kong dollars and trade the same as other equities on the Honk Kong exchange.

H-shares on the exchange are automatically included in the Hang Seng China Enterprise Index, provided that they maintain the Hong Kong exchange regulatory requirements.

H-shares are available for more than 90 Chinese companies, giving investors at least some access to most of the major economic sectors such as financials, industrials and utilities. In 2007, the Chinese government decided to allow mainland investors to invest in the Hong Kong exchange, which greatly increased the demand for H-shares, as mainland investors were previously forbidden from investing in the exchange. China still offers A-shares in many of the same companies, but only mainland residents can invest in them.”  You can see this entry in full at: http://www.investopedia.com/search/searchresults.aspx?q=h-shares&submit=Search

What does it mean?

Well I assume it means that domestic Chinese investors are increasingly focused on the likely impact on the market of tightening measures the Chinese Government has begun undertaking.

The Shanghai composite index is down 21% since its high on 23 November 2009, while the MSCI China index of Hong Kong shares is only down 10%

China’s still headed South – Baoshan Iron a good buy?

31 Aug

Shanghai continued moving South this week as I’d expected for the following primary reasons:

1) Less credit – Caijing magazine expects CNY200bn of lending this August, compared with CNY355.9bn in July, and a staggering CNY1.53tr in June.

2) Reduced company earnings – for example Baoshan Iron 1H09 profit decreased 93% to (CNY669m) as shipbuilding and car manufacturer continued to be hit globally.  The company said that “foundations for a domestic recovery are not solid.”  China Southern Airlines (China’s largest carrier) 1H09 profit decreased 97% to CNY25m.

Good news is that the index is now trading at a 29.2x p/e compared with a high of 38.75x on 4 August.  This compares with 19x for the MSCI EM index.  Nonetheless with potentially higher growth prospects in 2010+ than other countries Shanghai certainly deserves to trade at a higher thatn MSCI EM overall.

Goldman Sachs consider China a ‘bright spot’ in equities, and focus on that growth potential in 2010 and beyond.  GS sees the Government remaining pro-growth.  In addition, Baoshan remains one of GS top ten picks for China.  In fact of 35 analysts polled, 30 recommend a buy/add/overweight for the stock, with an average Target price of CNY9.33 (a third above today’s close).