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Show me the money: Chinese A share

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There are lots of talk about Chinese A shares market these days, both because of the big drop lately, and because of the in-action of the goverment. You can read the two Chinese articles (one supports inaction, another cries for goverment action), if you know Chinese. I don’t want to get into the debate of “moral hazard”, which is also a heated topic in the US right now. I am trying to explain why the Chinese A shares are still expensive, from value investing point of view.

Let me use two blue chip stocks as example, the 600030 (Citic Securities) and 600036 (China Merchants Bank). Both released 2007 results and declared the dividend. I rounded some of the numbers for simplicity (without distorting the results).

600030: dividend payout ratio (dividend/earning per share) 0.50/4.00 = 12.5%, the company pays 12.5% of the earnings to the shareholders, leave the rest for re-investing.

dividend policy pic

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Some Chinese stocks look cheap

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(Jan 31) Read this piece from Shui Pi, a reknown Chinese stock columnist. Quote a paragraph here:
统计表明,2007年中国资本市场融资再融资的规模近8000亿,而印花税为2005亿,两者相加近10000亿,相当于流动市值的十分之一。这笔钱是从市场中拿走的,基本上不可再生。如果2008年的主板融资规模维持不变,那么再加预期中的创业板的融资规模和大非解禁的资金数量,增量资金的需求量就是一个天文数字。2008年的股市有那么乐观吗?He is saying, the transaction cost plus the new IPO last year totaled RMB 1 trillion, which is about 10% of the total market float.

(Original) After recent brutal selling of Chinese domestic market, it appears some “blue chip” stocks are fairly cheap. For instance, 600030, Citic Securities (CS), the No.1 broker (and No. 2 investment banker) in China, traded at around CNY 67.00, considering its 2007 earning of CNY 4.00 (up 400% from last year CNY 0.80), the PE ratio is about 17, not that far compared to Goldman Sachs (NYSE:GS), which has a PE about 10.

Citic 600030 pic

Why the stock is so cheap now, I mean compared to high flying couple months ago (last Oct.)?

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Citic Securities tied up with Bear Stern

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Yesterday (Monday Oct 22 Beijing time) I was wondering why the Citic Securities 600030 stock did not trade in Shanghai: the official reason is CS expected to announce some news. I thought about the Bear Stern (NYSE: BSC) thing, and my guess was right. Here is the news this morning (Oct 23), in Chinese and in English (Bloomberg).

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