Sinomania! the truth about china October 15, 2007 — Shanghai Composite 6,000 - PetroChina - Hang Seng 30,000? - Money Trouble - IPOs - 17th Party Congress Convenes: Sinomania! Volume I Episode 36

The Great Chinese Bull Market Continues With New Record Highs in Hong Kong and Shanghai! Party Bosses Congress in Beijing - Will they plan harmonious correction?


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The Shanghai Composite Index broke through 6,000 on October 15 to close at 6,030 continuing a steep rise since just last week. The CSI 300 Index follows somewhat less dramatically with a new record of 5,832.447 today. Shanghai Bs have exploded since our last episode and closed October 15 at 387.183, a new record. Conversely, ShenZhen Bs have taken a nose dive and closed today at 759.606, the lowest level since September 13, wiping out a month's gain.

Who's up? PetroChina is up, up almost nine and half percent today alone in New York to close at $236.44 a share. Only two months ago PetroChina was selling for $125. PetroChina shares trade on the New York Stock Exchange as PTR, an ADR or American Depository Receipt with a ratio of 1 ADR to 100 home country shares. Today's rise helped make PetroChina the second most valuable company in the world with a market capitalization of $434 billion US dollars. Now Asia's biggest corporation will challenge ExxonMobil for the top spot.

PetroChina is a darling of investment houses and although one well-known guru, Warren Buffet, has decreased holdings, his Berkshire Hathaway company remains the top six institutional holder.

Famous contrarian Mark Mobius, a Templeton manager of emerging markets, is bullish on the stock and increasing his exposure to it up to five percent. In an interview in Hong Kong, Mobius said he was bullish on energy stocks and believe they have a "way to go" as long as oil prices rise.

Mark Mobius is the latest stock soothsayer singing the virtues of the Hong Kong exchanges. He thinks the Hang Seng Index at 30,000 is possible and believes Hong Kong is the best value of all the major equity markets with many Hong Kong companies currently selling at a discount. Hong Kong overall is selling at under 20 times profits while the Shanghai Composite sells at 50 times profits.

But while the Hong Kong market may seem cheap compared to Shanghai, the two are increasingly symbiotic. The hottest stocks in Hong Kong are Chinese H shares and Red Chips which now make up over half of Hong Kong's market valuation.

And the big run up in Hong Kong shares is due to speculation of when - not if - mainland Chinese domestic retail investors are let in. I have no news whether Chinese regulators will agree on their positions and actually begin a coherent program but many analysts believe it will be in place by next year. JPMorgan is saying it could lead to $60 billion US dollars worth of capital flow into the Hong Kong market, so something to think about and perhaps plan around over the next year.


Money is everywhere and the central government appears unable to control the growth of China's money supply with M2 money growing around 18.5 % in September and bank credit expanding over 17% - both figures well above targets despite recent interest rate hikes and other efforts to slow it down. China's central bank, the People's Bank of China, is expected to raise the ratio of required reserves to 13% a new high in an effort to stop bank lending. Most economists predict inflation will stay high and become potentially very dangerous if it can't be brought under control by second half 2008. On the flipside, Renminbi appreciation should accelerate faster. Morgan Stanley's forecast is for the Yuan to trade at 7.30 to the US dollar by year's end.


GobiMin, a mining company trading in Toronto (TSXV:GMN) will IPO part of its subsidiary Xinjiang Yakesi Resources on either Shanghai or Shenzhen sometime next year. Money raised will be used to further develop its nickel and copper deposits and fund acquisitions. No further details at this time.

Giant Interactive Group, holding company for Z T game, has filed application for an IPO on the New York Stock Exchange. Giant is the brainchild of Shi Yuzhu, a young Chinese entrepreneur, and his Z T Online was last year's most popular online game in China. This is the first time a Chinese technology startup is looking to the New York Stock Exchange rather than NASDAQ. Estimates range up to $400 million in proceeds if the IPO goes through. Online gaming is big business in China so this could be one to look out for.

Meanwhile, heavyweights China Mobile and PetroChina are still eying A share listings as soon as possible.


Communist Party bosses are meeting all week in Beijing in a closely watched but misunderstood congress. The powers that be mainstream media are quick to dismiss the party meeting with shallow coverage and plenty of talk about jockeying for position and scandals of meetings past. While the party congress is an important part of the Chinese political process it is not - as many would have you believe - an end unto itself. Nothing will be decided and the true course of policy direction determined until affirmed at next year's National People's Congress in March.

I'll have a full report on the party congress and what clues it will give for opportunities in China's growth and investment direction in next week's show.

Until then, I'll see you next time!

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