Tuesday, October 9, 2007

China Shenhua Shares Rise 90%; Chairman "Dissapointed"

Ok the Shanghai A shares are in a bubble - we all know it, and we all know bubbles can continue far longer than anyone anticipates. So one can ride the bubble until it pops (apparently it pops at the opening ceremonies of Summer Olympics if you listen to conventional 'wisdom')

I just had to laugh at this news story today as I was looking around at the news on coal stocks to see if there was something specific driving Consol Energy (CNX) and Peabody Energy (BTU), both up around 3% today and this is what greeted me.

    The chemistry of A-shares mania combined with energy stock fever sent China Shenhua Energy up 90.3

  • In the biggest initial public offering in the world this year, shares of China's largest coal miner on Tuesday opened sharply up at 68.00 yuan ($9.07), 83.8% above its IPO price of 36.99 yuan ($4.93). Investors found it hard to resist the temptation of piling up more shares, sending it up to 70.40 yuan ($9.39) in the morning session on robust demand.% in its debut on the Shanghai Stock Exchange.

  • Nevertheless, China Shenhua Chairman Chen Biting professed to be far from thrilled, saying the 90% surge was within expectations and not very satisfactory.
  • China Shenhua is the world's second-largest listed company by marketable coal reserves after Peabody Energy (BTU) of the U.S., with 6 billion tons.
  • 'The price is largely driven by investor enthusiasm for the company and its broad reach as the largest coal producer in China. It also has a large scope of business including railway, power and ports,' said Wang Ye, an analyst at Beijing-Based CITIC Securities.
  • China Shenhua's 66.6 billion yuan ($8.9 billion) A-shares issuance is the biggest initial public offering to date in China, surpassing the 58 billion yuan issue by China Construction Bank
  • It is also the world's largest new listing in this year, topping JSC VTB Bank, Russia's second-largest lender, which raised $8 billion in May.
  • Investors in Hong Kong didn’t share the joy with their mainland counterparts. China Shenhua’s H shares dropped 3.2%, or 1.45 Hong Kong dollars (18 cents), to 44.35 Hong Kong dollars ($5.69).
Takeaway: Hilarious really. Shares in the closed Shanghai market (closed to outside investors, open to naive mainland housewives and taxi drivers) push the stock up 90%. In Hong Kong, where international investors are allowed - the stock fell 3.2%.

So before you call me names or imply that I look down on any people of this world, ask why on 1 exchange (closed to the world) it's up 90%; and in another (open to the world) its down 3%. That is only a 93% variance. Hysteria and mania at it's best. No wonder new billionaires are being printed out monthly in China. List anything on Shanghia and your paper worth is expanded by the multi millions (billions) instantly. Reminds me of.... of.... oh nevermind. (just try to think back of the US people in 99/00 - housewives trading from home with their new online accounts, taxi drivers giving stock tips, hairdressers, nail technicians, people pulling money out of any savings to throw into tech stocks... boy doesn't sound familiar in the least)

Humans are humans. The behavior never changes, no matter what nationality, race, or country. A lot of naive behavior going on - the killer is with limited supply of stock and a country that actually SAVES (unlike the US) you have a flood of money entering the Shanghai market weekly and momentum begets momentum... this will end badly (someday). Who knows when, and Shanghia might be 10k before it happens? Or it starts in 3 weeks. Impossible to tell. All I know is when 90% IPO is a disappointment we have another nail in the eventual coffin.

Long Chinese billionaires based on paper wealth based on Shanghai twilight zone valuations.

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