Economy predicted to grow in 2010
- Source: Global Times
- [00:10 December 07 2009]
- Comments
While Hong Kong's stock market may still be trending upward, the mainland markets have seen roller-coaster-like swings since the start of the year. The major Shanghai composite index nearly doubled from the end of last December to August 4 of this year, its highest mark since March of 2008, on the strength of abundant liquidity following China's 4 trillion yuan ($585.65 billion) stimulus package. It then dropped 30 percent in less than a month in response to fear of a tightened lending policy.
The stock market bubble has been reflected in the first-day trading prices of newly-listed companies this year. They have reached 20 times the estimated earnings-per-share rates based on the companies' past financial results.
The bubble is even more obvious on the newly-established Growth Enterprise Board (GEB) for small- and medium-sized enterprises (SMEs). About seven of the first 28 GEB-listed companies had prices as high as 100 times their previous earnings in 2008 when they first started trading in October.
Huayi Brothers Media Group, a filmmaker, was one of them. Planning to raise 620 million yuan ($90.78 million) at 28.58 yuan ($4.18) per share with an initial price-earnings ratio of 69.71, the company sold 163 times the number of its offered shares, totaling 1.2 billion yuan ($175.77 million), almost double the amount of capital it planned to raise. Its price on the first trading day spiked to 70.81 yuan ($10.37) per share, nearly 1.5 times the issue price. Though Huayi's stock dipped slightly recently, its price of 62.85 yuan ($9.21) per share is 155 times the company's 2008 earnings-per-share.
Liu Erfei, chairman of Bank of America Merrill Lynch China Branch, said the quick development of China's economy and enterprises is creating a price premium on the market. "But 100 times the price-earning ratio is a bit too high," he said. "Overall, I feel the market has some bubbles, but it is currently controllable."
The problem with the China A-share market is its high-end position, which is beyond the reach of a majority of SMEs, said Xiong Yan, chairman of the China Beijing Equity Exchange (CBEX). "In nearly 20 years of development of the Chinese capital market, the total number of domestically and overseas listed (enterprises) is about 2,000, but there are between 8 million and 100 million Chinese enterprises," he said. "where else can they go for financing?"
Wang Ran, CEO of China eCapital Corp, pointed out that "in any other market, 99 percent of the enterprises can't get listed."
