PetroChina: Proof the Chinese Bubble is About to Burst?

PetroChina’s (PTR) much-publicized achievement of becoming the first company in history to top US$1-trillion in market capitalization has many wondering if this is a good reflection of China’s ascent on the global stage or merely a bubble that is due to burst any day now.

China now accounts for four of the world’s top ten companies (also China Mobile (CHL), China Petroleum (SNP) and Industrial and Commercial Bank), as well as seven of the globe’s 16 biggest names, Northern Securities points out in a note to clients.

The Chinese market may be in an extremely speculative phase, the firm said, adding that while its market cap used to be only a fraction of its GDP, the US$3.8-trillion in value for Chinese stocks now exceeds the nation’s estimated GDP of US$3.25-trillion by 17%.

How does this compare with other emerging nations or the United States?

It is significantly above Brazil, India and Russia, and is almost on par with the U.S. market’s valuation, Northern Securities said, noting that the Russell 3000 is worth US$17.5-trillion and the U.S. GDP is roughly US$15-trillion.

“The number of Chinese companies that figure among the world’s largest is also reminiscent of similar dominance by Japanese banks in the 1980s and 1990s... and more recently, by U.S. technology companies in the late 1990s,” the firm said. “Both those episodes of market dominance ended in unprecedented blowouts. Is the Chinese market destined for a similar fall? Only time will tell.”

Nonetheless, it is interesting to compare PetroChina’s enormous growth to other global leaders. Northern Securities does just that:

- PetroChina’s market cap is only slightly below the combined $1.2-trillion market value of the companies that make up the TSX 60 index.

- Its market cap exceeds that of Exxon Mobil (XOM) and General Electric (GE) combined, the second and third-biggest companies in the world, respectively.

- The Chinese oil producer is almost as big as the Russian stock market and well above India’s Sensex index.

- PetroChina has pushed China’s stock market (Shanghai) into the third spot among global markets, surpassing the U.K.’s FTSE, and is only behind the U.S. and Japan.

Comments

[omooc]

This morning's (11/6/07) Wall Street Journal has a similar write-up. Why are you so concerned? No one forces you to buy; in fact, non-residents are not even allowed to buy. So, why worry? omooc

[alivinlee]

I don't know why everybody can use this 1 Trillion figure and write a story without looking a little deeper. Shanghai's 4 Billion shares issued is only 2.18% of outstanding shares. The bigger bulk of shares are listed in Hong Kong and NYSE ADR, and the China Government. With HK and ADR shares at 16, and 212 price carrying the bulk of the weighted listing below 400 Billion. Still below Exxon's 488 Billion.

[alivinlee]

I don't know why everybody can use this 1 Trillion figure and write a story without looking a little deeper. Shanghai's 4 Billion shares issued is only 2.18% of outstanding shares. The bigger bulk of shares are listed in Hong Kong and NYSE ADR, and the China Government. With HK and ADR shares at 16, and 212 price carrying the bulk of the weighted listing below 400 Billion. Still below Exxon's 488 Billion.