JAPAN REVISITED? CHINA'S BUBBLE FLIES OWN COURSE
By Louise Lucas
Wednesday, November 07, 2007
Few analysts, it seems, can resist the temptation to draw parallels between the Japanese bubble of the late 1980s and today's go-go Chinese markets.
And no wonder. Valuations may still have a way to go in China (at 50 times forward earnings they are still comfortably below the 70-times multiple of Japan's bubble years) but there are plenty of other similarities.
Strong economic growth? Check. Loose monetary policy? Check. Exporting capital? Okay, so the stakes taken in recent weeks in US and South African banks don't quite rank alongside Japan's trophy deals of the 1980s, but they certainly pass muster.
The Shanghai market has more than doubled this year and China is now home to four of the world's 10 most valuable companies.
Two decades ago, Japan ruled supreme. In 1988, according to Business Week rankings, Japan boasted eight of the world's 10 most valuable companies. NTT, the fixed-line provider, was worth just shy of $300bn - or about four times today's value.
Now, China boasts the most valuable telecoms carrier - China Mobile is worth more than $400bn - as well as the biggest bank, airline and insurer. (Some of the numbers merit caution, since non-traded shares of dual-listed stocks are based on the higher Chinese stock price, even though the Hong Kong float is sometimes bigger.)
There are structural similarities too. Even though Japan, at its peak, dwarfed the US equities market, its free float was far skimpier. Crossshareholdings held by friendly stakeholders such as suppliers, clients and banks accounted for perhaps two-thirds of the market.
Likewise the galloping Chinese stock market - which, measured by Chinese stocks in Hong Kong as well as the domestic markets, trumps Japan in size - is largely off-limits. Two-thirds of the market is held by state entities and mainland investors have only limited access to shares listed on the Hong Kong Exchange.
Peter Tasker at Dresdner Kleinwort runs through Hyman Minsky's seven-stage model for bubbles and finds both past and present markets pass with flying colours.
德利佳华(Dresdner Kleinwort)的彼得•塔斯克(Peter Tasker)在研究中借助了海曼•明斯基(Hyman Minsky)的泡沫七阶段模型。他发现，无论是过去的日本股市，还是现在的中国股市，其特征均与泡沫模型相符。
In China's case, the sea change in prevailing assumptions comes from its emergence as a world power. Euphoria met its high point in Japan in 1987, when investors paid Y1.2m a share for NTT - and more than doubled their money in a month. Two decades on, investors in China Shenhua Energy, a coal producer, did not even have to wait that long.
就中国而言，它作为世界大国的崛起，导致了投资者对中国市场看法的重大转变。1987年，日本股市的兴奋度达到高点，投资者以每股120万日元的价格购买NTT股票——1个月内股价上涨就超过一倍。20年后，煤炭开采商——中国神华 (China Shenhua Energy)的投资者甚至不用等那么长时间。
But colourful though the similarities are, there are important differences too.
Andy Xie, a Shanghaibased economist, notes that the numbers are actually far more modest in China - particularly when you look at the wealth held by households.
He points out, for example, that while the total value of Chinese companies listed on the exchanges of Shanghai, Shenzhen and Hong Kong equate to 146-167 per cent of gross domestic product, the actual free float is far smaller.
Stripping out shares that are not liquid and international tranches brings the ratio down to just 38 per cent.
Meanwhile, China's low real interest rates are only one factor fuelling the stock market. Equally pertinent is the fact that capital controls preclude much investment in overseas assets: relative valuations are a lot less valid if you only have one home for your money.
Will it all end the same way? That is the $64m (Y7.33bn, Rmb477m) question, but Mr Xie, for one, does not foresee a massive unravelling that hammers property prices and pushes the economy into years of recession.
Partly this reflects less borrowing and the fact so much of the wealth is freshly minted - and very little of it has been spliced and diced off to other parts of the financial system.
"Most people enjoy watching the price going up, but nothing happens in between," says Mr Xie. "It's like going to a casino. It's not like Wall Street, where they are pushing financial products and causing demand to rise more than it would (otherwise)."
Bizarrely, another big difference would appear to be the number of Cassandras. A Google search suggests an almost unanimous euphoria existed in late 1980s Japan; in China, the doomsayers are out in force. Everyone from government officials to Alan Greenspan, former US Federal Reserve chairman, have warned that China is a bubble waiting to burst.
Whether or not the implosion is as dramatic as in Japan, it seems a fair bet the China equities bubble will pop. But it is worth noting, however, that some of the party poopers' comments may carry a whiff of sour grapes.
Warren Buffett, the investment guru, exited his holding in PetroChina at an estimated average selling price of HK$11.47-HK$13.89 between July and October.
This was up to HK$8.19 below yesterday's close.