NationStates Jolt Archive

http://www.reuters.com/article/bankingfinancial-SP/idUSSHA22866820070723

Not Citigroup, not anymore.

It's ICBC, the state-owned bank in China. They went and got themselves listed in Shanghai and Hong Kong a few months ago, the share price went up by more than 15% and with a total value of $254 billion is now worth more than Citigroup (with $251 billion).

That is despite the fact that Citigroup had $90 billion in revenues last year and ICBC just $24 billion. And despite the fact that Citigroup is an international player everywhere around the world and ICBC hasn't expanded beyond China in any meaningful way and is still working on modernising its branches (which I imagine is quite a task...I always have this image in my head of some dusty little shack in Inner Mongolia).

So in my opinion ICBC is massively overvalued. Potential should of course play a role, but people said that during the technology bubble too, where investors were apparently happy to pay a premium for firms that were making losses as opposed to those actually earning money.

What do you think will happen to the Chinese share market over the next few years, and what implications would that have for the Chinese economy as a whole and thus the world?

And despite the fact that Citigroup is an international player everywhere around the world and ICBC hasn't expanded beyond China in any meaningful way...



What do you think will happen to the Chinese share market over the next few years, and what implications would that have for the Chinese economy as a whole and thus the world?

come on, china has upwards of a billion people living in it. probably not all of them using a bank (by any means), but that's more population than the US, Canada and the EU put together... probably Australia, too. if that isn't potential i don't know what is ;)

and to address your question: many of the "asian tiger" economies have seen huge fluctuations in the last 20 years, with huge booms and investment, followed by massive recessions. Japan was in a big bad recession last time i studied economics (3 or 4 years ago). but what makes china different is that perhaps - unlike the others - it isn't and won't be dependent on western investment, but will invest inwards, and develop its economy in a much more self-sustainable manner.

if that isn't potential i don't know what is ;)
First of all it's not hedging one's bets, which doesn't seem like such a smart idea.

and to address your question: many of the "asian tiger" economies have seen huge fluctuations in the last 20 years, with huge booms and investment, followed by massive recessions. Japan was in a big bad recession last time i studied economics (3 or 4 years ago).
You should probably keep Japan's issues and the Asian Tigers apart. There were different reasons.

This article (http://www.economist.com/displaystory.cfm?story_id=9401752) explains some of the similarities between China and the Asian Tigers before the crisis.

Personally, I see China repeating the pattern of 1980's Japan in too many ways for comfort.

The Shanghai stock market is rising at a blistering pace totally unjustified by fundamentals, huge sums of money from home and abroad are pouring in to the markets seeking flashy stocks with high returns, bad loans and overinvestment are soaring and property values in the wealthy coastal areas are rising at an out-of-control pace. If the bubble bursts rather than deflates, we'll be seeing a hard landing and quite possibly Japanese-style stagnation for a prolonged period.

Shanghai Composite (http://finance.yahoo.com/q/bc?s=000001.SS&t=my&l=on&z=m&q=l&c=)

Unfortunately, I can't find a good image of the Nikkei bubble, but the trajectory is dangerously similar. A mediocre, even declining trend suddenly reverses and explodes upward in both cases.

i personally think the chinese economy will continue to expand at a very fast rate for the next 20 years at least. this is because its government has done a very good job at holding its currency down and thus making its products artificailly cheap. this makes its economy more competitive and therefore will sell more.

i think this is going to continue to happen over the next few years comming, which would allow thechinese economy to grow and develop, further adding to the chinese foreign exchange resrves currently at $1.3 trillion. Also, by the time the chinese currency appreciates, its government will be ready and its banks will be in a very strong position. of course many small chinese companies wont to able to cope with the currency advantage its has but this would also mean big businesses in china will have much more money and will allow for many takeovers to happen.

when this happens china's governemt, banks and big corporations will swamp the US, Europe and other Asian firms as well as africa with acquasitions. by then, many of us will start to beliefthat china is a global player.

Shouldn't the value of a bank take into account the money it is storing?

So in my opinion ICBC is massively overvalued. Potential should of course play a role, but people said that during the technology bubble too, where investors were apparently happy to pay a premium for firms that were making losses as opposed to those actually earning money.

What do you think will happen to the Chinese share market over the next few years, and what implications would that have for the Chinese economy as a whole and thus the world?
Of course it's overvalued. The whole Chinese stock market is overvalued and in serious danger of over-heating (even the PRC have commented it's overheating). It's gone up some ridiculous amount in the last 2 years (just checked - SSE Composite Index has risen 386% since October 2005).
ppl are pouring money into the Chinese stock market with scant regard of the economics of the companies they're investing in.
I think it'll continue for a while then self-correct.
It won't be as bad as '87 because govts have become a lot more fiscally conservative since that black day but it will hurt quite a few speculators and greedy investors.

Shouldn't the value of a bank take into account the money it is storing?

Not really, considering that money isn't technically theirs; it's been given to the bank by their customers, and they are required to give that money back if and when a customer can legally demand it.

However, money made off of investing the deposits is counted as revenue.

Personally, I see China repeating the pattern of 1980's Japan in too many ways for comfort.

The Shanghai stock market is rising at a blistering pace totally unjustified by fundamentals, huge sums of money from home and abroad are pouring in to the markets seeking flashy stocks with high returns, bad loans and overinvestment are soaring and property values in the wealthy coastal areas are rising at an out-of-control pace. If the bubble bursts rather than deflates, we'll be seeing a hard landing and quite possibly Japanese-style stagnation for a prolonged period.

Shanghai Composite (http://finance.yahoo.com/q/bc?s=000001.SS&t=my&l=on&z=m&q=l&c=)

Unfortunately, I can't find a good image of the Nikkei bubble, but the trajectory is dangerously similar. A mediocre, even declining trend suddenly reverses and explodes upward in both cases.
How about this one:
http://chart.finance.yahoo.com/c/my/_/_n225
specifically 1988 thru to 1993.

As I mentioned, I don't think it'll be as bad as previous. For example, the NZ stockmarket has broken 4000 for the first time since 1987. Other economic indicators are very similar - esp house price rises. But there are significant differences. Inflation is low, unemployment is low and govt debt is extremely low - in fact technically the NZ govt is out of debt.
As a result, NZ is much better placed to get over a stockmarket crash.
HK moreso. It has billions sitting around doing nothing just in case of a severe downturn.