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And in a class all by itself, the US$1 trillion(1,000,000,000,000) club.
On Monday, the 4 billion A-share offering, priced at 16.7 yuan per share, finished its first day of trading on the Shanghai Stock Exchange at 43.96 yuan, rising as high as 48 yuan intraday. At US$1.005 trillion, PetroChina’s market cap is more than twice that of its US peer, Exxon Mobil (USD $486 billion), even though Exxon Mobil generated four times as much revenue last year and trades at only a quarter of PetroChina’s price to earning ratio, 13 to PetroChina’s 55.
But the craziness doesn’t end there. The lofty market cap comes with an asterisk: US$1 trillion only if you go by PetroChina’s local valuation. Shares traded overseas (Hong Kong and New York) values the company at roughly US$400 billion. One HK share (H-share) confers equity holders the same amount of ownership as one A-share, and one share of ADR traded on the NYSE grants 100 times as much ownership. While PetroChina’s A share closed up today at 43.96 yuan, its H-share finished down 8.2 percent at HKD $18, or 17.65 yuan (1 yuan=1.02 HKD). The gaping difference is a function of many factors: Beijing’s restriction on capital flow, lack of investment choices in China, and of course, out-of-control greed coupled with widespread ignorance on the part of Chinese retail investors.
In a related story, billionaire investor Warren Buffet sold his entire PetroChina stake several months ago, calling the price action in China “carried away.”
Jay Sheng is Shanghaiist's Business Editor. Email tips, news and gossip about business in Shanghai and China to biz at shanghaiist.com.
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It's easy to be #1 when you are a monopoly with the entire resources of a major economy backing you.
Jay,
big fan of ur blog... I witnessed the exact same craziness (disconnect of stock prices of the same company on different exchanges) during my last visit to shanghai back in 2004 - i guess little has changed then.
pardon my ignorance of the chinese stock market - is there any way to arbitrage it at all? Is shorting still not allowed? what about options?
My guess is if arbitrage is allowed, who's to say this craziness won't continue until you run out of capital/time? just look at LTCM - and they were arbitraging discrepencies FAR smaller than this (albeit extreme leverage though).
Thanks for reading. Sorry for the late reply.
Shorting on the local exchange is not allowed. There are several ways to get around that, HK being one possibility, then there is FXI and CAF over on the NYSE.
Craziness can definitely outlast your solvency, and you're right, LTCM being the prime example.