With a P/E ratio of just under 20 times versus a market P/E ratio of around 23 times, CAMC was priced to sell. Every effort was made to ensure it didn't disappoint on its June 19 trading debut.
As domestic A-shares come online, Bank of China 3988 HK captured the market's attention with a 15% gain on its opening day. BOC is definitely on a roll – after netting a cool US$11.2 million from Hong Kong's widows and orphans, it announced plans for a secondary listing in Shanghai worth around US$2.5 billion.
Meanwhile, exercising its greenshoe option to sell an additional 15% of its H-share issue raised US$1.4 billion. Not bad for a bank which had to devote three pages of its prospectus to past scandals.
Culling brokerages
Banking scandals aside, China's capital markets regulators are breaking new ground in lassoing China's heretofore wild-west stock brokerages. Bankrupt investment banks are now being closed instead of being sold to their former competitors. This is important because closing a company means figuring out what happened, rather than just telling the unlucky buyer to sort things out and not complain.
The current closure process is being overseen by teams of lawyers and accountants rather than by party officials – although I'm sure the apparatchiks are kibbitzing! These professional teams include returnees with foreign training and experience in law and in accounting; they are taking months – not days or weeks – to complete their work.
This due diligence after the fact, if you will, is also documenting, for the regulator's information, the extent of noncompliance in the brokerage sector. Looking forward, this orderly closing of defunct brokerages also builds the hands-on supervisory experience needed to prevent recurrences of current problems.
All in all there is a new seriousness to China's finance regulators. Pilot projects to control credit risk are being implemented in both rural and urban markets, with the goal of creating a fact-based, standardized, timely reporting system across the country. Within a decade, China's bank supervisors will have the information at hand to avert crises instead of having to wait until they explode.
And not a moment too soon, since we are facing a crisis in our tiny portfolio. Minsheng Bank 600016 CH has retraced the modest gains it realized after its G-share reforms. True to our prediction – maybe I should have kept quiet! – Huaxia Bank 600015 CH fell after it resumed trading.
On the agriculture front, Mogao 600543 CH remains suspended and Guannong 600251 CH continues its downward trend.
So what's a retail investor to do in between bottles of sake? Let's have another run at Baosteel 600019 CH, which has been showing suspicious signs of life after weathering a serious downturn in the steel cycle. Some analysts are beginning to see value in steel stocks as the cycle passes its trough. Baosteel is a well-run company and is getting better, so there are no worries on the company's operations.
Steel is a steal
In times of moderate market uncertainty in the face of demands on liquidity from IPOs, Baosteel's liquidity makes it a good stock to hold. After ramping up strongly in late-2003, the share price has been slaloming its way back to a low point just beneath the RMB3.90 mark.
As readers may recall, Baosteel was one of our earlier stock picks, which we faithfully rode down to RMB4.10 before bailing out in favor of a variety of interesting stocks, some of which actually made money. The share price is now picking itself up off the floor from a two-year low and the ceiling of RMB7.70 is comfortably far above the current price to make the upside attractive.
Let's cash out of the bank stocks and Guannong and put the balance into Baosteel where we can always sell a few shares to buy the BOC A-share IPO. Phew, time for a drink!
