The least safe stock in China?
By George Chen
The opinions expressed are the author’s own.
Is history going to repeat itself? I am talking about the 2008 market crash in China, which was partly triggered by a company’s mega-sized fundraising plan. The company is Ping An Insurance, whose Chinese name literally means “safe” and is China’s No.2 insurer.
Ironically, Ping An may be considered one of the most “unsafe” stocks in the market given its bumpy trading track record. Yesterday, shares of Ping An slumped soon after the market opened and many investors cited market rumours about Ping An’s new plan to raise as much as 100 billion yuan (US$15 billion) as the cause of the slump.
The buzz spread fast and wide in the market. By midday, a number of brokerages including CITIC Securities issued research notes to clients saying Ping An needed more money to boost its capital base and expand business, in particular after its landmark acquisition of Shenzhen Development Bank, though different brokerages had different views on the potential size of the fundraising. Some said 40 billion yuan would be enough. But still, 40 billion yuan? That’s a ton of money.
In early 2008, Ping An surprisingly announced its 160 billion yuan fund-raising plan, mainly to cover its investment losses abroad and quickly gained massive criticism not only from investors but also from some regulators. In addition to the impact of global financial crisis, Ping An’s 2008 fund-raising plan, which didn’t work out in the end, became a trigger to turn China’s stock market into a bear market from bull-run.
To me, it is understandable why many retail investors in China often like to brand Ping An as one of the most “irresponsible” listed companies, though the company claims it has won many corporate governance and social responsibility-related awards.
Late on Thursday, Ping An Insurance (Group) of China Ltd was forced to issue a brief statement, saying it does not have any refinancing plans in the Shanghai stock market, as it shares fell to a three-month low on fundraising rumours. However, the insurer did not say if it intended to raise funds on Hong Kong’s H-share market in the statement posted on the Hong Kong stock exchange. The spokesman for Ping An declined to elaborate further. As you can tell, the buzz about Ping An’s fund-raising is not going to end anytime soon in the market.
2011, A YEAR OF FUND-RAISING
Ping An is often considered a must-have stock for portfolio reason among institutional investors at home and abroad. The rumor about Ping An’s mega-sized fund-raising plan came amid growing expectations that many other Chinese financial institutions and developers may have to raise more money in 2011, which some investors have already thought of as “a year of fund-raising”.
Just few days before the end of 2010, I remember an official Chinese newspaper ran a front-page article to praise China’s top securities regulator Shang Fulin’s work in 2010, saying under Shang’s leadership, China has become one of the world’s biggest stock market by market value from “little known” in recent years and it also afforded the largest amount of IPO fund-raising in total in the world in the past year.
Oops! The editor for the story must forget compare these facts with the other more interesting thing — China is also the worst stock market in terms of its performance among all major economies in 2010. And the reason? I will say we should partly thank those big fund-raisings.
And 2011? It looks like it’s going to be another year of fundraising for China’s stock market. A day after the buzz about Ping An’s fundraising plan, Agricultural Bank of China, one of the country’s Big Four state lenders, announced a 50 billion yuan bond issuance plan. Minsheng Banking Corp, a leading non-state lender, is also said to be seeking 3 billion yuan via a private share placement soon.
Hurry up, fundraisers — the earlier the better, before you drive investors mad!
I asked my colleague Samuel Shen in Shanghai who stay in touch with China’s top fund managers closely if the new fund-raising buzz about Ping An could trigger the Shanghai index into a bear market. He replied me: “Are we already in a bull market?” He’s right.
We concluded since 2011 is going to be “the year of rabbit”, maybe “bumpy” is the best word to describe the outlook of the market. What’s your say, my friend?
George Chen is a Reuters editor and columnist based in Hong Kong.
Photo: A woman talks on her mobile at a customer service centre of Ping An Insurance of China in Beijing April 16, 2010 REUTERS/Christina Hu