Ci-dessous une bonne chronique (avec une touche d’humour) prise de la revue Forbes sur la situation du marché boursier chinois.
Gady A. Epstein 12.10.07, 12:00 AM ET
How do you say « irrational exuberance » in Chinese?
Two years ago investors had no use for Jilin Aodong Medicine Industry Group or the Liaoning Cheng Da Co., two of the many clunker state-owned companies with publicly traded shares. The shares change hands on the Shenzhen and Shanghai exchanges, respectively.
Since then the stated core businesses of both companies have stagnated and China’s securities regulator has implicated Jilin Aodong in an insider trading investigation. In a normal market that would scare buyers away.
China’s markets are anything but normal. Both Jilin Aodong and Liaoning Cheng Da shares have risen 750% in the last year, and their stock charts look like copies of each other despite the fact that one is a drugmaker and the other is ostensibly in the fabrics trade.
Their trick? They are playing the stock market themselves, and the stock market is playing them. Each has a big stake in a Guangdong brokerage, Guangfa Securities Co., whose investment profits, flowed through to the Aodong and Cheng Da profit-and-loss statements, were responsible for 96% of Jilin Aodong’s first-half earnings of $132 million and 90% of Liaoning Cheng Da’s first-half earnings of $141 million.
Guangfa Securities, unlisted but one of China’s largest brokerages, in turn benefits from the run-ups in the share prices of the two companies that own stakes in it. Guangfa is the third-largest shareholder of Jilin Aodong and, through an employee-owned affiliate, the second-largest investor in Liaoning Cheng Da. The affiliate sold a piece of its stake in Cheng Da this summer, booking a tidy profit. Not even the July arrest of Guangfa’s ex-president on suspicion of insider trading in the same investigation that ensnared Jilin Aodong could dampen investor enthusiasm. Both companies’ profits and shares continued to perform strongly in the third quarter.
« You can say there is a relevant risk–relevant. But if you say ‘big risk,’ that’s definitely not appropriate, » says a representative at Liaoning Cheng Da’s Dalian headquarters, Yu Zhanyang. Asked about the company’s textiles business contributing little to the net, he replies, « We will make some changes to our core business by the end of this year, but I cannot disclose them right now. »
At Jilin Aodong a man who declines to give his name says pharmaceuticals remain the core business but that the bull market just shows how smart the company was to increase its stake in the securities business. Guangfa declines comment.
The U.S. used to have absurdities like this–companies in effect declaring a profit from the rise in their own share prices. In the 1920s, that is.
Fast-forward to Shanghai and the roaring 2000s. In two years the Shanghai Composite Index has quintupled and the Shenzhen Component Index has more than sextupled. Now China’s combined market of 1,500 companies with A shares (the primary kind available on the mainland) is trading at 40 times earnings. Chinese companies’ shares also have soared in Hong Kong and abroad, but not to the same degree.
Circular ownership–with the potential for a pair of companies to prop up each other’s share price and earnings–is not at all uncommon. « They actually support each other and increase the stock price. More and more companies are like this, particularly the big companies, » says Xu Xianghua, a branch manager for First Capital Securities in Beijing.
Trading largely in obscurity and isolation for most of its 17-year existence, the Chinese stock market has drawn the world’s attention this year by helping create some of the world’s richest companies. PetroChina, China’s largest oil producer, was briefly worth $1 trillion, double ExxonMobil’s market value.
Outsiders take the valuations with a grain of salt. PetroChina may be the world’s most richly valued company, and Industrial & Commercial Bank of China may be the world’s most richly valued bank, but only 1.6% of PetroChina’s outstanding shares and 3.6% of ICBC’s are trading on the Shanghai exchange. On the New York and Hong Kong exchanges, where PetroChina can be had, the implied market capitalizations are not nearly as great.
Chinese investors inhabit a bizarre universe in which moneylosing companies can keep increasing in value, mining companies can be worth more than all the reserves they have to mine, and buyers stubbornly ignore trading scandals and government warnings about overvalued shares. For now, the masses are pleased. Says Edmond Huang, a China strategist in Shanghai for UBS: « The high-end restaurants are full of people, taxis are difficult to find. People are happy, talking about making how much money from the market. It’s too good to be true. »
Government authorities have tried to dampen demand by increasing the tax on transactions, raising interest rates, floating more blue-chip offerings to soak up money and admonishing investors about the risks of an overheated market. « Their objective is to try to soft-land the market, » says Huang. « It’ll be interesting to see whether they can do it. »
But as the largest shareholder in many of the frothy companies traded on the exchanges, the government has mixed motives. It is not uncommon for the government to inject assets into companies, changing their effective value overnight, says Peter L. Alexander, principal of Z-Ben Advisors in Shanghai. « No one knows what the P/E on the market is because no one knows what the real E is, » he says. « A lot of analysts outside of China have been stating that the Chinese market has been overvalued since January, so their credibility is certainly being called into question. Nobody right now, and I mean even the smartest guys in Hong Kong, knows what’s happening up here. »
A complex interplay of state policy, opaque dealmaking, questionable accounting, insider trading, mergers and acquisitions, interlocking holdings and rampant rumors have fueled the boom.
The most important factor by far in high valuations is public policy. State-owned companies release only a small fraction of their shares to the market. Stringent capital controls keep most Chinese currency in the country, leaving investors very few places to put their money. With Chinese banks offering negative returns–interest rates lagging inflation–and property prices already sky-high in big cities, Chinese stocks win by default.
The state helped start the winning streak in the summer of 2005 by declaring that it would not suddenly dump large blocks of its own shares on the market. After four years of steadily declining share prices in an economy that was growing at 10% a year, this one change in policy unleashed a huge amount of pent-up demand.
What makes a company hot on the mainland exchanges?
- Being in a popular sector. Zhongjin Gold’s share price is up 15 times since the beginning of 2005, and its current $3.8 billion market value now exceeds the total value of its reserves. In the West, a gold mine is worth more like 25% of its reserves.
- Claiming a big contract. « Companies do things like announce huge contracts with provincial governments, or they claim to have technology that is really avant-garde, » says James L. McGregor, whose JL McGregor & Co. in Beijing researches for hedge funds and other clients. « One of the things my company does is go and check this stuff out. It’s amazing how much stuff companies make up out of whole cloth. »
- Making itself available as a publicly traded shell into which a legitimate outfit can merge. Cangzhou Chemical Industrial Co., a debt-laden company in Hebei Province, has had an awful year, losing money and shutting down operations. Still, its share price has more than doubled to 67 cents this year. Such moribund enterprises are ripe for a backdoor listing in China, where red tape and politics can make it difficult for companies to get listed through the front door.
- Trading the scarce A shares of other listed companies and booking a profit. For nonfinancial firms, 40% of earnings growth and 21% of overall earnings came from investment income in the third quarter, according to an analysis by Jerry Lou of Morgan Stanley in Hong Kong.
- Let the rumors fly. « In the U.S., if there is a rumor spread in the market, the listed company has the obligation to state whether it’s true or not, » says Xu of First Capital. « But in China listed companies are not required to disclose anything. »
Early last year rumors began spreading that Tianjin Guangyu Development Co. had the political muscle to acquire substantial land holdings at a discount. After years of steady decline Tianjin Guangyu’s share price went up tenfold to $2.94 before pulling back to $1.81. (The rumors in this case turned out to be close to the mark.)
« Sometimes [rumormongers] don’t know the story behind it. They just say, ‘I heard the stock is going up, so buy it.’ It’s really a gold rush, » says Lerry Liu, general manager of Beijing Fortune Trust Investment Consulting. « Sometimes you get a call, they just know the stock number. They don’t even know the name of the stock. They just heard it’s going to rise. »
Where are the short-sellers? They’re hard to find. Short-selling is not allowed on the Chinese markets.
Additional reporting: Jean Chen, Qu Wei.