China's A Shares Finally May Be A-OK
Emerging Markets
AFTER FLIRTING WITH eight-year lows, China's A-share market may have bottomed at last -- or so say institutional investors.
Yuan-denominated A shares have been available to qualified foreign institutions for only a year or two, and their returns have been dismal. In contrast, H shares -- those of mainland companies traded freely in Hong Kong by all investors -- have delivered decent returns, in part because big companies, such as China Mobile (ticker: CHL) and PetroChina (PTR), have performed spectacularly.
"We haven't bought A shares because you can't redeem them," says Zachary Karabell, who oversees the Alger China fund in New York. "It's just been a way for the state to provide liquidity to moribund companies."
The shares also suffer from the large amount of nontraded stock held by the government. It's part of the reason China banned initial public offerings in the A-share market, even as some of the nation's largest companies, like China Construction Bank, list overseas.
All that may be changing. In April, China began a reform program to float the nontradeable shares in its 1,400 listed companies. In August, regulators issued guidelines by which companies could issue nontradeable state-owned stock to owners of the traded shares; a common formula was to issue three shares for every 10 shares held.
(Shenzhen-listed TCL, which makes TVs and mobile phones, plans to give holders of traded stock 2.5 shares for every 10 traded shares held. As a result, the stake of TCL's largest shareholder, a local government-owned investment company whose name translates as Huizhou Investment Holding, will fall to 19.52% from 25.22%.)
About 320 companies have gone through the reform process, and all the listed A-share outfits could be done with it by mid-2006, CLSA Asia Pacific Markets reckons.
A shares historically have traded at a premium to H shares because Chinese currency is nonconvertible, making the yuan-denominated securities one of the few investment options for domestic individuals. That premium has eroded and, for some stocks, disappeared. In fact, the H shares of cement producer Anhui Conch and Tsingtao Brewery already trade at higher valuations than their A shares. Thus, "we're very confident the A-share market is nearly at a bottom," says Tony Wu of Heartland Advisors in Shanghai. Wu helps oversee the New York-listed China Fund, which doesn't own A shares, plus other portfolios, which do. With $1.5 billion in Chinese shares under management, Heartland is one of the biggest investors in A shares.
The erosion of the A shares' premium valuation reflects the surge of Hong Kong's big cyclical H shares and the overhang in the A-share market. The price-earnings-ratio gap between the two has eroded, as well. Shanghai, home of the A shares, now trades at 14.5 times trailing earnings. That's still above the 10 times for the Hong Kong-traded H shares, but not much higher.
Tina So, the chief investment officer at BOC International Investment Managers in Shanghai, says that as untraded shares have come on the market, A-share valuations have fallen sharply and will continue to do so, unless earnings jump. But, So adds: "We have the feeling the A market is very, very close to a bottom, probably within a 10% range."
China is still trying to slow its economy, with mixed success at the top line but clearer success at the bottom line. Growth in industrial profits dropped to 19.4% in 2005's first 10 months, from 40% a year earlier, CLSA reports. If the U.S. economy slows, export-dependent China will suffer. For 2006, BOC's So pegs A-share profit growth in the single digits.
In October, the government unveiled is 11th five-year plan to boost consumption and reduce the economy's reliance on fixed investment. Yet Chinese consumers still lack a "feel-good factor" that will let them spend, partly because the health-care and pension systems are in disarray, So says. As a result, China's savings rate is running at 45%-plus of disposable income, almost double that elsewhere in Asia. By 2007, earnings are likely to recover. That will be "the year of action" in the A-share market, she maintains.
Wu of Heartland Advisors sees a turning point arriving sooner. "There will be a rally in the near future," he predicts. Wu points out that Shanghai real-estate prices have risen 50% to 80% in the past 18 months, and that "lots of money is leaving the property market and waiting to find alternative investments." Corporate governance is improving, notes Wu, who likes consumption plays, particularly retailers, which have fat real-estate portfolios. Among his Hong Kong-traded favorites: Lianhua Supermarket Holdings and New World Development, expected to spin out its New World Department Stores.
People are also betting on more renminbi appreciation, even though the currency is already up sharply against its neighbors', including the yen, the Indian rupee, the Thai baht and Indonesian rupiah. "By far, the best way to boost consumption would be a simple one-off appreciation of the renminbi, say by 20%, which would make the Chinese people significantly richer in dollar terms," CLSA strategist Christopher Wood wrote recently. "But this is not going to happen anytime soon." He said the A-share reforms mark "the beginning of the end of the long bear market," and suggested that, by next year, the freeze on IPOs would thaw and "decent private-sector companies may be able to list."
在8年来低点附近徘徊多时之后，中国A股市场可能终于触底了──或者说，至少机构投资者是这么看的。
外国投资者得以进入以人民币标价并交易的A股市场只有短短一两年时间，他们得到的回报一直都很低迷。与之相比，H股市场──所有投资者均可自由买卖的大陆公司在香港上市的股票──回报却相当可观，部分原因就在于，中国移动(China Mobile, CHL)和中国石油(PetroChina, PTR)等大型股一直表现优异。
“我们一直没有投资A股市场，因为不能变卖兑现，”纽约Alger China基金负责人卡拉贝尔(Zachary Karabell)说。“这个市场一直是一个中国政府向境遇不佳的企业提供流动资金的途径。”
A股市场低迷不振，很大程度上要归咎于政府持有大量非流通股。这也是中国政府在中国建设银行(China Construction Bank)等一些大型国企已在海外上市的情况下仍在冻结A股市场新股发行的部分原因。
这种情况可能慢慢会有所改变。今年4月，中国开始启动涉及1,400家上市公司的国有股改革计划。8月，证监会发布指导条例，规范上市企业向流通股股东发放国有股的做法，一般的做法是每持有10股流通股可获得3股国有股。
（以在深圳上市的电视和手机生产商TCL集团(TCL)为例，该公司准备向股东按10配2.5的比例配售国有股。最终，TCL最大的股东、当地政府下属的惠州市投资控股公司的股份将从25.22%降至19.52%。）
约有320家上市公司已完成股权改革，据CLSA Asia Pacific Markets估计，到2006年中期，所有A股上市公司都将完成这一步骤。
A股股价一般都高于H股的股价，这是因为人民币不能自由兑换，A股由此成为国内散户投资者为数不多的投资渠道之一。这个溢价正在不断收缩，有些股票的A股溢价已经消失。实际上，安徽海螺水泥(Anhui Conch)和青岛啤酒(Tsingtao Brewery)的H股股价已超过A股。因此，“我们确信A股市场已经几乎到达底部，”上海Heartland Advisors的Tony Wu说。他参与在纽约上市的China Fund的管理。这只基金不持有A股。但他也掌管其他持有A股的投资组合。目前Heartland管理的中国股票资产已经达到15亿美元，是A股市场最大的投资者之一。
A股估值相对于H股的溢价不断收窄体现了香港H股的激增走势，二者之间的本益比差距也在收窄。上海A股市场的往绩本益比目前是14.5倍，虽然仍高于H股的10倍，但差距已经不大了。
上海BOC International Investment Managers首席投资长Tina So表示，一旦国有股上市交易，A股估值就会持续大幅下滑，除非公司业绩迅速改善。不过，她也说，“我们觉得A股市场已经离谷底很近，也许已不到10%。”
中国政府仍在在采取措施遏制经济的飞速增长，经济总量增幅已有所下降，但利润方面的下降更明显。CLSA报告显示，今年前10个月中国工业企业利润增幅从上年同期的40%锐减至19.4%。如果美国经济放缓，出口导向型的中国经济将遭受打击。展望2006年，BOC的So估计A股上市企业的利润增幅低于10%。
今年10月，中国政府公布了第十一个五年规划，将提振消费和降低经济对固定投资的依赖列为重点。不过，中国仍缺乏刺激消费者放手花钱的因素，So认为，部分原因在于国家的医疗保健和养老体系相当混乱。在此条件下，中国的储蓄率达到可支配收入的45%以上，几乎是亚洲其他国家的两倍。她认为，到2007年，企业盈利将开始复苏，这将成为A股市场的“行动年”。
Heartland Advisors的Wu则认为转机会来得更快。“近期就会出现一轮飙升，”他预言道。Wu指出，上海房地产价格18个月来上涨了50%-80%，“很多资金已撤离房地产市场，等待新的投资渠道。”此外，企业管理水平也在提高。他看好消费类股，尤其是零售行业，这些零售商往往拥有雄厚的房地产投资组合。他看好的香港上市股票包括：联华超市(Lianhua Supermarket Holdings)和新世界发展(New World Development)，后者有望将旗下的新世界百货有限公司(New World Department Stores)分拆出来。
投资者还认定人民币会继续升值，即使人民币兑日圆、印度卢比、泰铢和印尼盾等许多邻国货币的汇率都已大幅上涨。“目前来看，提振消费的最好办法就是让人民币一次性升值，比如说20%。这会让中国人的财富按美元衡量迅速增长，”CLSA策略师克里斯托夫?伍德(Christopher Wood)在最近的报告中写道。“但这不会很快发生，”他说A股市场改革标志著“长期熊市的终结，”并表示，到明年新股发行有望解冻，“大量私营企业有望上市。”
