An Introduction to China's Stock Market
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Transcript of An Introduction to China's Stock Market
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An Introduction to
China’s Stock Market
April 21, 2004
Ying Tan and Dan Gao
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Profile of China
Full Country Name:
The People's Republic of ChinaArea: 9,600,000 sq kmPopulation: 1.24 billionCapital City: Beijing (pop 12 million)
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Profile of China People: Han Chinese (93%), plus Mong
olian, Zhuang, Manchu and Uighur ethnic groupsLanguage: Putonghua (Beijing dialect mandarin)Religion: Officially atheist; Confucianism, Buddhism, Taoism (no stats available); Muslim (14 million), Christian (7 million)
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China’s GDP Growth
GDP(1978- 2003)
0
5
10
15
1978 1982 1986 1990 1994 1998 2002 Year
US$ 100 Bi l l i on
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China’s Economic Forecast
C o nsu m p tion Inv e s tm e nt E x p o rts
E c o nim icC y lind e rs
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Financial System
• People's Bank of China• (Central Bank)
• Monetary Policy
• Banking Regulatory Committee • Insurance Regulatory Committee • Securities Regulatory Committee
• Banking System • Insurance Market • Securities Market
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Exchange Rate ChangesExchange rate
0100200300400500600700800900
1000
1981 1985 1989 1993 1997 2001Year
( RMB/ US$100)
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Exchange Rate System• Market-based, single and managed
floating exchange-rate system
----Convertibility of RMB current accounts
----Partially convertibility of RMB capital accounts
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Financial Market
• Money market: CHIBOR
• Capital market:
bond market
stock market
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China’s Stock Market (outline)• Why shall we know the market• Brief history• Share category and market structure• A-share market (feature, investors)• B-share market• Overseas share issuance• Problems• Market today
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Why shall we know the market?• The 8th largest stock market in the world
with market capitalization of $750bln.
• A fast growing market
• Great opportunity (World Expo and Olympics)
• Career opportunity (QFII, WTO)
• Friendship
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Market Trend (1990-present)
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Brief History• Started in Dec 1990 with only 8 listed
stocks
• Stock market fever 1992-93
• Dull years, 94-95: the creation of non-tradable shares and quota system.
• A promising but false start: 96-97
• Growth with CSRC in charge, 1998-2002
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Share Categories• Non-tradable shares a. Legal person shares b. State-shares• Tradable shares a. A-shares: denominated in RMB (1264) b. B-shares: denominated in US$ and HK$ (53,57) c. H-shares: PRC-registered listed in HK d. Red-chips: Chinese companies registered overseas and listed abroad
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Features of A-share market
• High P/E ratio (40 times)
• Still a supplementary sources of funding
(100bln)
• Still dominated by government’s intervention
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Investors on A-share market
• Individual investors (20m-40m vs 1.3bln): used to dominate the market (S/T speculation I/O L/T professionally managed investment).
• Institutional investors: securities companies(100) , trust and investment companies, investment funds (20, 10%,80%), insurance companies, assets management companies.
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B-share market• Started in 1991 as a category of shares exclusively
for foreign investors. In early 2001, Chinese individuals with forex accounts were allowed to buy B-shares.
• By the end of 2003, 112 firms had issued B-shares and raised RMB38.2bln of funds only.
• Same shares with different prices and rights.• It moves with A-share markets and is very illiquid.
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Overseas Share Issuance
• By the end of 2002, 75 PRC-registered companies had listed shares in HK (H-shares), NY and London, raising $20.4BLN.
• Nearly 60 red-chips are listed in HK.
• By mid 2002, 31 mainland companies and 9 HK red chips had issued ADRs in US with 14 listed on NYSE.
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Problems
• Poor regulation
• Poor accounting and auditing system
• How to deal with the non-tradable shares?
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A-share market in 2004• A bullish market• Reason:1. Expected 8.5% GDP growth in 20042. SOE saw good performance in 20033. Int’l investment banks increase their holding of
Chinese-concept shares4. Negative real interest rate5. Expectation of RMB appreciation, large foreign
capital inflow
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Chinese Stock Miracles• One fourth of Chinese stocks listed in NY e
xchange appreciated by 100%• Chinese Enterprise index in HK exchange r
ose up to 5000 from 2000 early in 2003• Sina, Sohu and Netease stocks rose twentyf
old in NY exchange• Buffett is the major shareholder of PetroChi
na
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H Shares !HSI—Hang Seng Index 33
HSCEI—Hang Seng Chinese Enterprises Index
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Beat the market!• Chinese Stocks in NASDAQ
Percentage changes of pri ces i n 2003
-100. 00%
0. 00%
100. 00%
200. 00%
300. 00%
400. 00%
500. 00%
600. 00%
700. 00%
2/11
/200
3
3/11
/200
3
4/11
/200
3
5/11
/200
3
6/11
/200
3
7/11
/200
3
8/11
/200
3
9/11
/200
3
10/1
1/20
03
11/1
1/20
03
12/1
1/20
03
1/11
/200
4
2/11
/200
4
Year
Perc
enta
ge Nasdaq I ndexSi naSohuNetease
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Why do the prices of Chinese stocks skyrocket?
• Direct factors: Many large investment institutions and banks flock to
purchase Chinese stocks; Most of Chinese listed companies have relatively high
EPS; Individual investors are bullish on the stocks only because
they are from China Mainland.
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Why do the prices of Chinese stocks skyrocket?
• Indirect factors: The prospect of the constant 7% economic growth in
China; China has caught the eyes of the world; Beijing’s 2008 Olympic Games and Shanghai’s 2010
World Expo; The satisfying learning-by-doing performance of Chinese
government in terms of economic development;
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Sagas of listed Chinese companies• BYD Co. Ltd. - H Shares
stock pr i ce
101214161820222426
2/11/2003
3/11/2003
4/11/2003
5/11/2003
6/11/2003
7/11/2003
8/11/2003
9/11/2003
10/11/2003
11/11/2003
12/11/2003
1/11/2004
2/11/2004
Year
HK$
stock pr i ce
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BYD Co. Ltd. - H SharesFinancial indicators (ended 31/12/2002)
EPS RMB 0.9333
Net asset RMB 2,571,417,000
Net Profit RMB 658,303,000
P/E ratio 27.00
Market Capitalization: US$ 1 billion
• BYD COMPANY LIMITED was founded on February, 1995, specializing in research, manufacture and sales of rechargeable batteries.Its main products include Lithium-ion batteries , Nickel-Cadmium batteries and Nickel-Metal hydride batteries. BYD moved to the new industrial park in September of 2000, which locates in ShenZhen, China. It covers an area of 374,000 square meters, and over 15 thousand employees work there.
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Dotcom companies in NASDAQ Exchange
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Sina.com & movie star
I will sell Sina at $45!I wanna b
uy Sina stock at$2!
Ziyi Zhang Daolin Mao
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A bullish market?
Stock bubble?
Or foolish investment?