Chinese stock market enters fast lane, blue-chip giants roll in
maybe GoodLife is next
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21:07, December 21, 2007
With Pacific Insurance raising 30 billion yuan (about 4.07 billion U.S. dollars) this week, marking the year's last glamorous initial public offering (IPO), the construction of a fleet of blue chips has just begin.
An unprecedented scale of IPOs dominated the Chinese mainland stock market this year, raking in about 61 billion U.S. dollars, nearly threefold of the floated value last year.
The fund collected in IPOs in this emerging market over the year out shadowed the floated money in American capital market by 10 billion U.S. dollars, and the gap is even larger compared with the UK market.
However, a shocking 85 percent of the money was raised by only 12 major Chinese companies and banks.
Mostly state-owned enterprises (SOEs), the blue-chips flocked into the market and aroused waves of investor excitement. The listing of PetroChina alone raised 66.8 billion yuan (9.1 billion U.S. dollars), which became the world's biggest IPO this year.
But the government calls for even more.
Li Rongrong, head of China's State-owned Assets Supervision and Administration Commission (SASAC) reiterated on Tuesday that China encourages eligible central administered SOEs to list on stock markets as a whole, or gradually inject their core assets into their listed arms.
China Securities Regulatory Commission head Shang Fulin even invited overseas firms and Hong Kong-listed domestic companies to go public in Chinese mainland market earlier this month, and the Shanghai Stock Exchange said it was considering introducing international firms that perform well in China.
Of the 43 Hong Kong-listed SOEs, 13 have not gone public in mainland markets. They include domestic giants such as China Telecom and Dongfeng Motor Group.
Also, the Shenzhen Stock Exchange is actively preparing for a NASDAQ-like growth board, which is expected to be established in the first half of next year.
Anticipating the policies to bring in more IPOs, China stock market value management and research center made an optimistic estimation of China's stock market performance in the coming year, saying the total market value will surge to more than 50 trillion yuan.
China's domestic stock market valuation has just approached 30 trillion yuan (4.1 trillion U.S. dollars) by Dec. 17, after surpassing the country's entire economy value in September.
Chinese companies headed into the world's top ten company rankings in market value. They are PetroChina, China Mobile, Industrial and Commercial Bank of China, Sinopec and China life.
In terms of market value, Chinese securities market has become the largest one among emerging markets and ranked the fourth in the world, the center said in a report released Tuesday.
The report further estimated that the market will have more than 50 stocks with market value of over one trillion yuan.
The quick pace of IPO on the mainland market would probably continue into next year, said Li Feng, a senior equity strategy analyst with China Galaxy Securities.
"Most of the listed companies still have high earning prospects due to good operation performance and forecasted growing profits," said Li.
Experts predicted that tourism, catering and department stores sectors would be the principle force for next year's IPO as the earnings expectations of these industries was on the rise.
Guodu Securities analyst Zhang Xiang believed that securities companies and media sector will have "big actions" next year.
The ongoing IPOs surely brought the expansion of the stock market. It could also prove effective in absorbing excess liquidity in China.
But what may be more significant is that a group of high-quality companies that worth investing was introduced into the market, which scaled down the risk of buying stocks in mainland market caused by disproportionately high earnings per share.
The interaction of investors and listed companies was exemplified by the banking industry. Going public helped replenish the capital of Chinese banks, which was regarded as insolvent by international investors. The capital adequacy ratio (CAR) of the four major state-owned commercial banks was raised to more than 12percent by the end of September.
If the investors were merely speculating on Chinese commercial banks when they bought into the Industrial and Commercial Bank of China (ICBC) in 2006, they may now come to see more value in this sector. The net profit of all listed banks in China on average surged by more than half in the first half of this year.
"According to released mid-year reports, the assets quality of listed banks has improved, and the income components has been optimized," said Guo Min, analyst of Shanghai-based Securities and Finance Research Institute.
The non-performing loans of Chinese major commercial banks was reduced to 6.6 percent by September. This indicative was 23.6 percent only five years ago.
Listed banks were motivated to improve the financial performance. They strove for getting a better loan-deposit ratio, optimized loan structure, and endeavored to boost its traditionally weak inter bank business.
The improved performance started to help banks attract more money on the capital market. The Bank of Communications and the China Construction Bank raised about 30 billion yuan and 58 billion yuan (7.86 billion U.S. dollars) respectively when they were listed in the mainland market, which is much higher than their valuation when they went public in Hong Kong.
The government would surely welcome more win-win situations like this, and it is determined to further realize its ambition to build a complicated multi-tier capital market next year.
Central Huijin general manager Xie Ping joked with ICBC governor Yang Kaisheng in a recent forum, "Now you see Governor Yang more than before, and he smiles more. That's what IPO gives you.
