Heady Days for Chinese Stock Investing
November 06 2007:
Amid scenes reminiscent of the United States markets' heady dotcom days, Petrochina has become the world's biggest company and shares in the Chinese online trading platform Alibaba have almost trebled on their first day's trading in Hong Kong.
On its first day of trading in Shanghai, PetroChina overtook Exxon Mobil to become the world's biggest company. PetroChina saw its shares nearly triple from 16.7 yuan to 43.96 yuan, valuing PetroChina at about US$1 trillion. This is more than double Exxon Mobil's market value.
But some analysts warned that PetroChina's Shanghai share price was the product of feverish speculation and was too high. PetroChina's share price is 60 times earnings - well above the global average of oil producers, which is 18 times current earnings and well above the normal limits for prudent stock investing.
Shares in state-owned PetroChina are already traded in Hong Kong and this week's in Shanghai represented just 2% of the stock.
Meanwhile, Alibaba (ticker: 1688.HK) sold 17% of its stock to raise £715m at a sale price of 13.5 Hong Kong dollars per share. The initial sale price valued Alibaba at 106 times its earnings forecast 2007, which was already a steep premium to most other firms, even internet stocks.
At close of trade today, the shares were trading at HK$39.5, giving Alibaba a market value of US$25.8bn and a price/earnings ratio of 310. By way of comparison, Google, whose performance of late has been stellar, currently trades at a p/e ratio of 46.