Beware the froth around Xiongan-themed stocks as sellers hold back

Chen Yifeng can’t wait to buy shares of Tangshan Jidong Cement, one of the star stocks to emerge from President Xi Jinping’s ambitious plan to create a world-class economic zone on Beijing’s doorstep.

Unfortunately it looks as though the 39-year-old accountant from Shanghai may have to.

Buying has been so frantic that the cement maker’s shares have shot straight up by their maximum 10 per cent limit for three consecutive days, leaving investors like Chen frustrated.

Their sudden popularity followed last weekend’s surprise announcement of government plans to establish the Xiongan New Area in the northern province of Hebei.

“It’s a huge state event and has drawn high-profile attention,” said Chen. “Building a brand new city will drive demand for cement significantly so I am very positive on Jidong Cement. It’s still Ok if I can buy into the stock before its fifth daily up limit.”

Jidong Cement is one of the dozens of stocks that have been dubbed by local investors as “Xiongan concept” shares – companies located in the vicinity of the site of the futuristic new district in Hebei.

The Xiongan area comprises three existing rural counties, Xiong, Rongcheng and Anxin, and will eventually expand to cover an area of 2,000 square kilometres – the same size as Shenzhen – from 100 sq km initially, according to Xinhua.

In a report by the state news agency Xinhua, Xiongan is placed on a par with Shanghai’s Pudong new district and the Shenzhen economic zone. Those areas were hand-picked by former leaders Deng Xiaoping and Jiang Zemin as test fields for China’s economic reforms and moves to “open up”.

As well as taking over some low key government functions from Beijing, Xiongan will also serve as a pilot project for building green and smart cities, and developing high-end technology and service industries, according to Xinhua.

Morgan Stanley predicts that a lot of state-owned enterprises, universities and research institutions will be moved to Xiongan from Beijing, bringing with them as many as 4.5 million people and adding total investment of up to 2.4 trillion yuan over the next 10 to 20 years.

Investors have been quick to seize their opportunity in the equities market. Although Shenzhen-listed shares of Jidong Cement have surged 33 per cent over the past three days, less than 1 per cent of the company’s outstanding stock changed hands, indicating there were few sellers despite strong buying interest. The Tangshan city, Hebei province-based company accounted for about 30 per cent of cement sales in Beijing, Tianjin and Hebei last year.

Shares of property developer China Fortune Land Development and steelmaker Hesteel have also jumped by the maximum permissible 10 per cent for three straight days. China Fortune has two land plots covering 481 square kilometres within Xiongan that will be developed into industrial parks, while Hesteel is the biggest maker of the alloy in Hebei province.

The run-up makes the stocks look expensive relative to their industry peers. Jidong Cement is now trading at 16.5 times projected earnings, making it 62 per cent pricier than Anhui Conch Cement, China’s biggest maker of the building material. China Fortune is 38 per cent more expensive than its larger rival China Vanke on a valuation basis.

“Xiongan stocks will be very volatile going forward and investors will need to follow the momentum precisely before they can make money,” said Wang Chen, a partner with Xufunds Investment. “If the stock on your radar screen quickly doubles or triple, it doesn’t make sense to chase it any more.”

Investors may do well to remember the swift‘pump-and-dump’trading bonanza that occurred when the government announced the creation of the Shanghai Free Trade Zone in 2013. Shares of Shanghai International Port surged more than threefold within one month on Beijing’s decision to create the area as a pilot project for financial deregulation and fewer restrictions on foreign investment. After the frenzy receded, Shanghai Port’s stock price plunged and is now still 15 per cent lower than its then-high.

Still, the stock market is now probably the best place for investors to speculate on assets related to President Xi Jinping’s dream city. Local authorities have already stepped up measures to tighten the property market in the Xiongan area, freezing housing transactions and tearing down illegal constructions. Vice Premier Zhang Gaoli even warned against “large-scale” property investment and speculation in the region in a recent meeting.

For retail investor Chen, it’s a matter of waiting patiently for his stock investment opportunity to come.

“It will be a long-term strategy. The future of the new area is promising, given that it enjoys the same status as Pudong and Shenzhen, and what Pudong and Shenzhen now look like,” he said. “I mustn’t be too hasty, and I can even wait for the stock to correct before buying.”