Shares of China’s state-owned firms charged higher Tuesday, as investors piled in on bets that supportive signals from authorities would boost the companies’ valuations.
(Bloomberg) — Shares of China’s state-owned firms charged higher Tuesday, as investors piled in on bets that supportive signals from authorities would boost the companies’ valuations.
CNOOC Ltd. jumped by as much as the maximum 10% allowed in Shanghai and rose 5.8% in Hong Kong to pace gains in the Hang Seng China Enterprises Index. On the mainland, China Petroleum & Chemical Corp. rallied as much as 6.9%, while Sinopec Oilfield Service Corp. climbed 9.6%.
The moves came on the heels of reported remarks by Shanghai Stock Exchange general manager Cai Jianchun, who suggested valuations at state-owned companies were too low and called for the firms to have better access to funding in the market. His comments reinforced the positive stance adopted by authorities as they champion what was once a forgotten corner of the stock market.
“It’s still in an early stage, but investors are bargain hunting as they are waiting for more policy details, and as these SOE names are very cheap,” said Shanghai-based Central China Securities analyst Zhang Gang. “Whether China could boost market value of these SOEs via reforms is yet to be seen, but regulators’ recognition boosts confidence.”
The other stocks that rallied included China Construction Bank Corp. which gained as much as 4.8% in Shanghai and Postal Savings Bank of China Co. which advanced 4.2% in Hong Kong.
Profits at listed SOEs have risen 70% over the past five years but their market capitalization has increased by only 10% while their price-to-book value has decreased 30%, according to Shanghai Stock Exchange’s Cai. The low valuations limit their ability to tap financial markets and hurt the capital market’s development, he added, proposing a combined push with the securities regulator to address this.
His remarks come after the national regulator proposed a campaign to benchmark firms in China to first-class international enterprises. SOEs came into focus late last year when the securities chief spoke of a “valuation system with Chinese characteristics” and mooted a new method of valuing state, private and foreign controlled companies.
READ: China Fund Beating 99% of Rivals Bets State Firms Still Cheap
Analysts say the mention of SOEs on the sidelines of the National People’s Congress will further bolster bets that a re-rating of the sector is underway.
So far, some of the best performers of the SOE play include state-run telecommunication providers which have surged to record highs amid bets involving AI and cloud computing. As a result, China Mobile Ltd. is now the nation’s third-largest stock by market valuation.
“State-owned listed companies with relatively cheap valuations have naturally become the key targets of institutional investors,” said Shen Meng, director at Chanson & Co in Beijing. “The adjustment will not just be a short-term phenomenon, but could become a dominant driving force of the Chinese market in the future.”
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.