Mispricing China (III)

By

Sampson Iroabuchi Onwuka

In a book Stephen A. Greene ‘China’s Stock Market’, the author makes a critical argument about the rise of Shanghai Stock Market at the expense of Shenshen. Historically, it was Shenshen province that began to incorporate foreign investors in Chinese Stock and many of those early Investors funded much of the new and newer companies of Shenshen. It is said that Shenshen probably has more foreign hands in deciding its uplift industrially than Shanghai. But the man in charge of then Shanghai Province at the point was a certain Hu Jintao, who re-introduced Shanghai Stock market in 1985 to the world and forced local industries to register independently. It was the incoming Mayor of Shanghai so to speak that forced a political case to be made about Shanghai as a legal and preferred alternative Stock exchange than Shenshen. The result has been the overshadowing of Shenshen in spite of its very huge potential.

What is however happening now is that a shift from international companies to local companies have taken place, and Shenshen through the last decade is gradually reappearing and carrying with it, substantial companies that offer as much as Shanghai and Hong Kong, with a drop in prices. The new Shenshen Stock Exchange has in its roots very CHINA traits, and these companies that are deliberately local in Shenshen are entertaining the posture for foreign business through Red Chip. There is then the market advantage of buying Shenshen on the condition that China cheap money to upend inflation, need an outlet in final product, and this availability may help facilitate Nigerian direct bidding of companies with B shares index.

Sinopec and Petro China are China owned but overpriced. Their registration types and processes involved in deal making and executions make them expensive and mark them foreign. It is not too late to complain that we damage our Crude oil market to go that big since Nigerian Crude oil woes has not done any better since the arrival of the Chinese big tuff corporation.

Nigeria is not that big, and in terms of underperforming companies in a placed country like China, you buy into the companies outright, given the managerial depth of the company. If that is achieved, the Invested Interest been naturally subject to companies growth will position itself strategically and then profit rotation in dollars or Naira becomes a different matter.

In essence, the success of these companies in many parts of world, especially Afghanistan, a success that includes a 100 billion profit in 2006 alone, makes Petro China the most capitalist company in China and one of the highest rated in the world. For that case, these companies are not that fitted to drill for much Nigerian profit from Crude oil.

It also makes Petro China an instant rival for the Seven Sisters, bigger in market rate than Gazprom and Shell, but not in capitalization. It also makes Sinopec - a company that is not lagging behind Petro China in wide swathes - a very expensive crude company in Naira terms. But such commentary should find accommodation in the recent pricing of Nigerian oil fields and above all, in the very recent effort on Nigerian government to auction a part of their very lucrative crude oil fields to local and international companies.

I guess, it need be asked, what was the reason behind such huge profits made in 2006 by Petro China, the reasons are quite few but it also includes a shift from Red Chip operating with direct Beijing incentive with little or no expense drive - in and services, rendered whole by communist workers to a shift based on the newly acquired ADR status, where the loans are originated in dollars and therefore balanced in dollars. The total money function aggregates off in as dollar rated company and the return in dollar terms means that China is not selling their Crude oil and done oil to China alone, they selling by selection to outfits within the states as well.