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Shanghai in free fall as oil giant plummets
The newly floated oil giant PetroChina has lost a third of a trillion dollars in nominal value in just three weeks, plummeting to a fresh low yesterday as angst gripped the Shanghai stock market.PetroChina briefly boasted a paper worth of a trillion dollars when it floated 2.2pc of its shares The benchmark CSI 300 index of Chinese stocks has dropped 18pc in November, the worst one-month fall in more than a decade. The bourse has tumbled 22pc since peaking in mid-October after a wild speculative boom that saw prices triple in a year - much like the final phase of Japan's Nikkei frenzy in 1989. It now qualifies as an official "bear market". What began as a bout of profit-taking in Shanghai now risks turning into a serious correction as the government steps up efforts to ration credit and drain liquidity. Beijing is alarmed by 6.5pc inflation and surging food prices, afraid it could set off political unrest amongst China's vast army of footloose urban migrants. PetroChina briefly boasted a paper worth of a trillion dollars when it floated 2.2pc of its shares on November 5, vaulting ahead of Exxon to become the world's richest corporation by far - in theory. But US investor Warren Buffett earlier cashed in his minority holding for a 600pc gain of $3.5bn (£1.7bn), warning that the Shanghai boom had become unstable. The Shanghai market still remains expensive with an average price to earnings ratio of 55. advertisement PetroChina's trillion-dollar tag was widely viewed as absurd given the company's struggle to tap new oil reserves around the world. The share price has since fallen 37pc. Shenhua Energy is down 32pc, a fate shared by a long list of resource, industrial, and trading companies deemed sensitive to the credit cycle. Among the losers yesterday were: Cosco shipping (down 5.5pc on the day); Harbin Pharmaceutical (-5.65pc); Aluminium Corp of China (-4.9pc); Wuhan Iron & Steel (-4.27pc) and Baoshan Iron & Steel (-3.9pc). The tumbling stock market may be a warning that the Chinese economy is headed for a sharper slowdown than expected after years of torrid growth, reaching an annual rate of 12pc this autumn. The country is heavily reliant on exports, which make up 40pc of GDP. Most of the goods are low-margin consumer items shipped to the US and Europe. A study this month by China's commerce ministry said the fall-out from America's sub-prime crisis posed a serious economic threat. "If demand in the US drops further, Chinese exporters will be devastated by a rapid and continuous fall in orders," it said. Nouriel Roubini, an economist at New York University, said China lacks sufficient demand at home to withstand a serious US downturn. China could now pay a heavy price for holding down its currency and relying for too long on a mercantilist export model. Investment is 43pc of GDP, and much of it has gone into factories and plant to produce goods that the world cannot easily absorb. Read Posted by: Anonymoose 2007-12-02 |
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