Wednesday, June 27, 2007

What Bubble? China's Analysts More Bullish Than Ever

This feels more and more like a deja vu.....But with so much liquidity tied to the yuan this can easily go on for much longer than we might think. From a fundamental and investor sentiment point of view this market looks as a beautiful short. But with all the liquidity it is way too dangerous.

Hat außer mir noch jemand das gefühl eines Deja Vu´s....? Dank der unfassbaren Liquidität die an den Yuan gekoppelt ist kann das noch ne ganze Weile anhalten. Fundamental und auch von der aktuellen pychologischen Sichtweise riecht das ganze nach einem wunderbaren Shortkandidaten. Dank der irren Liquidität ist das Ganze aber zu gefährlich.

June 26 (Bloomberg) -- Zhang Shibao covers 12 Chinese stocks and recommends investors buy all of them, even after they've more than tripled on average in the past year.

``We are still in the middle of the bull market and the uptrend is irreversible,'' said Zhang, a steel analyst at China Merchants Securities Co. in Shenzhen.

Analysts who cover Chinese companies, such as Zhang, are the most bullish they've been at any time in the past 10 years. Total buy calls on mainland shares from local and foreign analysts rose to 67.4 percent of all ratings this month, the highest since Bloomberg began collating the data a decade ago. The bullishness comes as the government is trying to cool a rally that's made shares there the most expensive in Asia.
> Time for to start a Chinese site

Zhang has eight ``strong buy'' and four ``buy'' recommendations on the dozen iron and steel stocks he covers. They have gained an average 218 percent over the past 12 months and are up 97 percent this year, according to Bloomberg calculations.

Shares of Shanxi Taigang Stainless Steel Co., China's biggest maker of the corrosion-resistant metal, have leapt 355 percent over the past year, while Wuhan Iron & Steel Co., the nation's third-biggest steelmaker by market value, have almost quadrupled. Nine of 10 analysts who cover Shanxi Tiagang rate it a buy, while 10 of 18 recommend buying Wuhan Iron & Steel, according to Bloomberg data. Zhang has ``strong buy'' ratings on both stocks.

CHINA produced 34% of the world's steel in 2006, while consuming only 30.9% of it

> Should be great news for margins and stock prices when supply is exceeding demand.....

> Müssen wirklich tolle perspektiven sein wenn das Angebot neurdings die Nachfrage übersteigt.....

Sell calls make up 10.3 percent of all ratings, the lowest proportion on record, and hold ratings comprise 22.2 percent of the 12,301 recommendations on Chinese stocks tracked by Bloomberg.

`Momentum and Liquidity'
Ping Jingwei, an analyst at Shanghai Securities Co., has buy recommendations on all seven stocks he covers, betting the inflow of new investors into the market will trump the government's efforts to cool it.

``Many of the stocks are above fair value in my opinion, but I don't put out a sell call because the market is now being carried along by momentum and liquidity,'' he said. ``I may think it's worth $10 but if it's now $15 and looks set to rise further, why would I put out a sell call? What if it keeps gaining? I'd look bad and it wouldn't look good on my appraisal.''

Avoiding Controversy
Guangzhou Donghua Enterprise Co., a Guangzhou-based residential property developer, has risen 189 percent this year. Ping put out a ``buy'' recommendation on March 15. Shanghai Shimao Co., a real-estate developer that has climbed 361 percent in 2007, earned a ``buy'' call from Ping on Jan. 18.

``I haven't encountered any pressure from my company so far not to put out sell calls, but I think there will be if I do,'' said Ping, who has been a securities analyst for two years after getting his Master's Degree in Finance from Shanghai's Fudan University. ``I avoid that by skipping companies that are not worth a buy. Instead of putting out a negative report, I'll just not put out one at all.''

U.S. Bears
By contrast, analysts in the U.S. have never been so bearish. Buy ratings fell below holds as a percentage of total U.S. stock picks for the first time ever in February, and now trail 45.3 percent to 47.8 percent, according to Bloomberg data.

China doesn't allow investors to sell shares they don't own and buy them back later, a practice known as short selling. That leaves brokers more reliant on buyers for commissions.
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Anonymous edgar said...

Nice post, very interesting. I have been following the China market on and off for the last six months. Incredible. I fear for them, the inevitable crash will be painful. There is an air of invincibility which permeates the small investor over there, and the fact that they haven't had open markets up until recently, and the mania. They can't believe a crash is coming, they look around them and business and construction are booming. It is a pyramid, though, a big one. All the earmarks are there, people borrowing heavily to buy stock, mortgaging houses and valuables. The leadership must be horrified watching what is going on, knowing that it will end badly. The environmental catastrophe over there merits a mention too. Outsiders can't buy the "A" shares, and I don't think they allow short sales. Even if they did there is no way I would try to tackle the giant panda while he is hopped up on psychedelic bamboo shoots.

8:22 AM  
Blogger jmf said...

Hello Edgar,

excellent points. i totally agree.

One factor for sure is that Beijing has lost control over the local governments.

And China is still subsidizing things like energy etc.

Not a clever way to push things in the long term

10:48 AM  
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11:54 PM  

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