Steady Does It

The HK market kept an even keel and managed to claw back some of the losses from yesterday. Investrors were still jittery and some have obviously decided to take some money off the table now that the "thru train" appears to have been delayed.

A series of bad news came out over the weekend when Wen Jia Bao said that the thru train will need further swtudy to ensure it does not adversely affect the Chinese market. The concern there is that too much money will leave the Shanghai market causing a crash on the Mainland.

The CSRC also reminded funds that they are to invest no more than 30% in any one market. Again, this is clearly aimed at curbing the flow of money to HK because currently, QDII funds are only allowed to invest in 1 overseas market and that is HK. There appears to be a big worry that Chinese investors will be buying into HK just in time for foreign investors to cash out, and be left holding over priced shares. This seems a bit rich because the H-shares traded in HK are a a deep discount to the corresponding A-shares in China. For example, PetroChina trades at a 150% premium to HK. Shares in HK are still cheap compared to China.

The main worry is that foreign investors will take advantage of gullible Chinese investors to off load their shares. Let them off load their shares if they want to. The story is China and they cannot afford not to buy in at the start.

Going back to PetroChina. This is definitely overvalued on the Mainland market. It is twice the market capitalisation of Exxon although it earns half the profits and have half the reserves. It is valued at 54x forecast earnings vs. Exxon 13x. Even the HK shares are over valued at 22x. Even if it manages to double the reserves and profits, it should only then be wirth as much as Exxon because oil is an international commodity.

Another story today is the listing of Alibaba. The IPO price was HK$13.50. The shares traded on the grey market yesterday at around HK$25. It opened at HK$32. Traded briefly below HK$30 and then went as high as HK$39.50 before closing slightly lower. At HK$13.50 it listed at 55x forward earnings. People expect this to the Chinese Google. There are some differences. Google is a consumer to consumer platform while Alibaba is business to business. There are a lot more consumers than there are businesses. If it is so great a deal, why have the strategic investors decided to cash out by selling their shares?