Bending to the market

PUBLISHED : Thursday, 21 July, 1994, 12:00am
UPDATED : Thursday, 21 July, 1994, 12:00am

MANAGEMENTS striving towards socialist market reform with Chinese characteristics at Qingling Motors have been obliged to alter their expectations to meet Western investor demands with capitalist tendencies.

It is apparent the group is due to be listed as an H-share firm on the Hong Kong stock market with the lowest valuation yet, at around nine times earnings.

The lowest listing valuation until now was Guangzhou Shipyard at 9.5 times.

If you remember, this shipyard firm hit the market in the wake of the controversy Shanghai Petrochemical met when it offered one of the largest listings of an H share last year.

Qingling appears to be determined to avoid the apparent embarrassment the top people at Luoyang Glass felt as they watched their stock deflate on the stock exchange trading machines on listing day, July 8.

The stock achieved the unenviable accolade of being the worst-performing H share to list on the exchange when it fell 20 per cent.

It came to the market on a price earnings ratio of 10.5.

Yesterday it stood at nine times.

Fickle market sentiment has changed from buying anything with ''China'' in its name just two years ago to baying for more discount, or bargain value, when ''equity issue'' and ''Chinese'' make it into the same sentence.

And do not just accuse the international investor of a whimsical outlook.

Also gone are the congested cattle-prodding days in Shenzhen when a few million people came out to pick up application forms to entitle them to apply for new A shares due to be listed on the Shenzhen stock market.

A shares have slumped. B shares are completely stuck and H shares are haemorrhaging.

It is encouraging to see Qingling's management willing to bend in the face of market sentiment.

A discount value against that of the market is being demanded to compensate for the uncertainty of investing in China's changing environment, along with the uncertainty of involvement in an H-share company.

Given the collapse in A shares in China and the fall in H share and backdoor share listings in Hong Kong, it could be time to consider whether the decline has gone far enough.