Confidence ushers in stunning performances

PUBLISHED : Sunday, 15 August, 1993, 12:00am
UPDATED : Sunday, 15 August, 1993, 12:00am


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STRONG measures to revive the yuan, confidence in Zhu Rongji's inflation restraint programme, belief in China as a long-term investment area and the novelty attributes of H shares have led to a stunning performance by China-based companies.

Tsingdao Brewery, Beiren Printing, Guangzhou Shipyard and even big and previously unwanted Shanghai Petrochemical have all performed extremely well on the Hong Kong Stock Exchange this past week.

Petrochemical was earlier the slowest mover, as the underwriters unwound their positions, and the others shot ahead. Now Petrochemical has bounded ahead too, on massive turnover, because investors perceived it to have been left behind.

Only three more H share issues are coming this year. They are Maanshan Iron and Steel, Yizheng Chemical Fibre and Kunming Machine Tools. The last two of the original nine Chinese companies to be listed in H share form are expected to come to the market next year: Dongfang Electric and Tianjin Bohai Chemical.

What seemed like a minor flood of H shares now looks like a fast drying up stream, with a shortage of scrip being taken advantage of by investment syndicates. Punters have jumped on the H share bandwagon in the same way in which they adopted red chips such as Shougang and Kader. Brokers' circulars advising caution, particularly on Shanghai Petrochemical, are totally ignored by the market.

Shanghai and Shenzhen's B share markets, probably not coincidentally, have come back from the dead, stimulated by the massive interest in H shares. B shares, clearly now on the up, have definitely hit bottom.

This healthier view of China companies bodes well for the listing tomorrow of Stone Electronic Technology, a mainland computer company. Stone aims to double its sales outlets by the end of next year. It already has 85 per cent of the Chinese character word processor market.

Stone's dominant position and the small size of the issue, $189 million, should make it another popular vehicle for local punters. Initially, there will be lots of small shareholders holding only a few Stone shares. An applicant for 10 million shares would only have received 238,000. An active debut is assured tomorrow. Stone's issue price was $1.26 and the grey market has already moved up above $1.60.

Profit forecasts appear conservative because no growth over last year is shown this year, but Stone should do better than that. Some analysts criticise Stone, saying it is likely to suffer from currency weakness on the mainland, but these fears appear now to be outdated. With B shares hot again, but extremely thinly traded, Stone is an excellent alternative.