by: Varun Shah
Last week, PetroChina became the first company in the world to be valued at more than US$1 trillion after its first day of trading on the Shanghai stock market, where China hungry investors lapped up the stock which nearly tripled the share price. PetroChina attracted more than US$456bn in subscriptions. With this listing, China is now home to five of the world's 10 biggest companies.
The oil and gas company shattered two records by raising a record US$9bn in October: it registered the world's biggest IPO this year and China's largest domestic IPO ever. PetroChina's market capitalization overtook the combined market caps of Exxon Mobil and General Electric, and is thus a prime example of both China's rapid economic rise and perhaps an equally fast and decisive correction expected in the equity markets. Is the valuation justified in any regard? No. There is no competing sides on the answer to this question as this is the sheer work of “irrational exuberism” of the West when it comes to Asian markets. Perhaps the valuations are justified in a long term point of view: 10? 15? 25? 30 years? Give or take a few years, but at 2007 levels these valuation are in no way representative of the company’s performance. Chinese markets have been attracting significant interest from institutional and retail investors over the past two years, as share prices have increased more than five times. Mainland China's stock market is valued at US$4.5 trillion, placing it within striking distance of Japan, but still a long way behind the US.
Analysts have been warning investors for the past few months that the Chinese mainland market valuations are in the midst of a speculative bubble due to booming economy and the massive liquidity that is stuck in China thanks to excessive US and European interest in all that is Oriental or just Asian for that matter. If its Chinese has an account statement and is listing…then there are takers. Investors have begun to disregard prior research and valuations judgments in favor of getting money in Asia as everything and anything that is listed seems to go up. 23% return in a day? Not bad.