Dragon Lady Consulting

US-listed Chinese Stocks: 2007 Summary and 2008 Outlook

Today is the last trading day for 2007. I would like to take this opportunity to give a small summary of 2007 and a quick outlook for 2008.

2007 obviously has been a very successful year for Chinese companies listed in the US. Approximately 30 Chinese companies went IPO in the US  in 2007. NYSE had over 40 IPOs this year; approximately half of them are Chinese companies. Chinese companies raised over $6B through IPOs and over $2B through private placement in 2007. In the secondary market, different index following US-listed Chinese stocks showed a 60%-100% increase from beginning of this year.

Looking at Chinese economy in 2008, Chinese government has taken more aggressive measures in the last few months for the purpose of preventing economy from overheating and curbing the rising inflation. Earlier this month, Chinese government increased the bank reserve requirement ratio by 100 bps to 14.5%. Last week, Chinese central bank raised its interest rate for the sixth time this year, and one year lending rate reaches nine year high at 7.47%. The government also widened the trading band for the Chinese currency Yuan. Yuan reached a record high of 7.3 Yuan per dollar yesterday, a 10% up sinceChina ended its peg with US dollar in July 2005. Only in this year, Yuan has increased 6.4% from beginning of the year, and expected to go up to 6.8 Yuan per dollar by the end of 2008. The Chinese government has also taken other approaches to tighten the domestic credit market and to absorb the access liquidity in the domestic market.

This tightened monetary policy and slowdowns in the US and Europe, will likely to affect the Chinese economy. For one thing, China will have to export less to the US  and  European market, and China is very dependent on its exports. Still, Chinese economy will continue to be driven by fixed asset investment and domestic consumption. ADB, Asian development bank, forecasted earlier this month that Chinese GDP growth in 2008 will be 10.5%, a slowing down from 11.4% in 2007, still a double digit growth. US GDP growth for 2008 was forecasted to be 2.4%

Among the US listed Chinese stocks, quite a few of them have had a good run this year. However, we believe, among the 270 US-listed Chinese companies, especially in our focused small cap universe, we can still find plenty of Chinese stocks which are undervalued based on their earnings potential. In addition, it is likely that we will continue to see private and public Chinese companies come to the US  to raise capital , as Chinese government tightens its credit market and as US  investors continue to show interest towards Chinese stocks.

The Dragon Lady

China raises interest rates- stocks advanced

12/21/2007

US-lsited Chinese stocks advanced yesterday. Among the reasons, first the US stock market was up overall, second China on Thurday announced it will raise one year deposit interest rate by 23bp to 4.14% and lending rate by 18bp to 7.47%. This is the sixth time this year Chinese central bank has raised interest rate. This, I belive, gave investors some sort of comfort that Chinese government is making effort to prevent the economy from overheating and to curb the rising inflation.

As to China' economic outlook for 2008, I believe the slowdowns in the US and Europe will affect Chinese economic growth to certain extent, mainly because China will have to export less to the US and European markets, and China is very dependent on its exports. But still, Chinese economy will continue to grow, driven by domestic consumption, fixed assets investment and urbanization. Last week, the ADB, Asian development bank cut Chinese GDP growth forecast next year to 10.5% from 11.4%; still a decent double-digit growth. US GDP growth was forecasted to be 2.4% next year.

One implication on Chinese companies listed in the US: I believe they probably will continue or increase their financing activities in the US market, as obviously, it has become more costly and difficult for them to borrow from domestic banks to support their growth.

-Dragon Lady