China businesses start to dominate the world
Although one knew of the growth and growth of China and its exports it comes as a surprise to read that China Life Insurance has passed AT&T in market value, giving China five of the world’s 10 largest companies. The United States only has three.
Allowance must be made for the fact that many, most?, of the world’s financial analysts says China’s stock is overvalued but it it nevertheless astounding to see that in the area by which the United States judges the rest of the world - the stock market - China reigns supreme.
China’s stock rally has almost tripled its benchmark index this year. China’s households are pouring more of their $2.3 trillion savings into shares to beat inflation, which exceeds the return on bank deposits, and to profit from the world’s fastest growth among major economies.
Beijing-based China Life, the nation’s largest insurer, gained 1.1% in Hong Kong and added 6.7% in Shanghai valuing the company at RMB1.94 trillion yuan, or $259.1 billion.
China Life, PetroChina Co., China Mobile, Industrial and Commercial Bank of China and China Petroleum and Chemical are now in the list of the world’s 10 biggest companies by market value.
However, as an indication to the skew in valuations only two of those are in the top 50 by sales.
The CSI 300 Index, which tracks shares traded on the Shanghai and Shenzhen stock exchanges, has risen 170% this year, the best performance among 90 global benchmarks tracked by Bloomberg. Hong Kong’s Hang Seng Index, which is dominated by Chinese companies, has gained 58%.
Only China Petroleum and Chemical, or Sinopec, and PetroChina are among the world’s biggest 50 companies by revenue.
Investors pay 78 times estimated full-year profit for China Life in Shanghai and 42 times in Hong Kong. That compares to 9.3 times for New-York-based American International Group, the biggest U.S. insurer, and 8.4 times for Europe’s largest, Munich-based Allianz.
China’s CSI 300 benchmark is valued at 43 times estimated earnings, compared with the average 29 times for Chinese companies on the Hang Seng China Enterprises Index, according to data compiled by Bloomberg. In the U.S., home to the world’s biggest stock market, the S&P 500 Index is valued at 16 times.
Fraser Howie, co-author of the book Privatizing China: The Stock Markets and Their Role in Corporate Reform, said, “Chinese companies are far too expensive from any rational measure. It’s a bubble and in a bubble things are priced wrongly.”
Leslie Phang, who helps manage $1 billion at Commonwealth Private Bank in Singapore, said, ‘It’s pretty unnerving. It’s all building into one big bubble. The Chinese companies are trading on euphoria.”
On the other hand Marc Faber, who manages $300 million at Marc Faber Ltd. in Hong Kong, said, ‘European countries were also surprised at the beginning of the 20th century when American companies overtook European companies. The world better get used to it.’
Tags: China-Enterprises-Index, China-Life, deposits, inflation, Insurance, insurer, Stock