Tuesday, November 6, 2007

PetroChina equals Indian economy

Imagine a single Chinese company with a market value that’s about the size of India’s $1 trillion economy.

That mind-boggling prospect became a reality on Monday when PetroChina, China’s state-owned oil and gas giant, became the world’s first company to exceed $1 trillion in market capitalisation following its dazzling debut on Shanghai’s manic stock market.

On a day when global crude oil prices edged closer to $100 a barrel, PetroChina’s share price in Shanghai peaked at 48.62 yuan (about $6.5) in a frenzy of buying by China’s high-on-adrenaline and low-on-reason stock market investors.

At that price, the company was valued at $1.2 trillion, more than twice as much as the next biggest - US energy behemoth Exxon-Mobil, with a market cap of $490 billion.

To put that humongous figure in perspective, the market cap of the entire Indian stock market is about $1.6 trillion; and India’s most valuable company - Reliance Industries, which is no pushover either - is worth about $100 billion, which seems puny in

At close of trading on Monday, as the broader stock market fell in Shanghai, PetroChina closed at 43.96 yuan, still some 160% higher than the IPO price of 16.7 yuan.

The closing price discounts PetroChina’s 2007 earnings per share about 50 times - a measure of the excessive froth and overinflated valuations in China’s bubbly stock market.

Indicatively, PetroChina does not make into the list of world’s top 50 companies by profits.

PetroChina chairman Jiang Jiemin, who sounded a gong and raised a toast to open the market, said he felt “very excited… and also a very strong sense of responsibility. This is PetroChina returning to our investors and society.”

With its spectacular performance on its home debut, PetroChina virtually single-handedly elevated China to the third place in the global ranking, based on market cap, displacing the UK.

Mainland China’s stock market, which has tripled in the past two years, is valued at $4.5 trillion, within striking distance of Japan ($4.8 trillion), but still a long way behind the US ($18.3 trillion).

On the market-cap measure, China is now home to five of the world’s 10 biggest companies.

Curiously, investors in Hong Kong and New York, where PetroChina’s shares are already listed, didn’t join the Shanghai party.

The company’s Hong Kong-listed H-shares fell nearly 7%, to close at a substantial discount to the Shanghai-listed A-share.

That indicates that the stratospheric stock market valuations in mainland China are causing international investors more than a little disquiet.

Regulators in China, too, have been trying to rein in the runaway stock market with stern warnings and policy initiatives, but so far they have proved spectacular ineffective.

On Monday, the official China Daily quoted Premier Wen Jiabao as saying the Chinese government would “take measures to prevent asset bubbles and avoid huge fluctuations in the stock market.”

Twice in the past month, the chairman of the China Securities Regulatory Commission has warned investors to be aware of the risks in the market.

But with China’s economy continuing to register blistering double-digit growth rates, investors have been deaf to the grim warnings of an imminent stock market crash. PetroChina’s mindboggling debut is only the latest indication of that.


No comments: