Brokers, investors back Chinese state firms, toeing Beijing's line

1 week ago 33

SHANGHAI : China's biggest brokers and investors are touting the value in the economy's state-owned sector as they toe Beijing's line on building a market "with Chinese characteristics", triggering a big jump in the share prices of these firms.

Brokerages have rushed to recommend "undervalued" stocks of state-owned enterprises (SOEs) to their clients, while fund managers are actively promoting exchange-traded funds (ETFs) targeting the sector, after China's top securities regulator called for better understanding of SOEs' intrinsic value early this week.

China has stepped up efforts to reform its SOEs over the past three years to make them leaner and stronger, but that has done little to change the West's perception that SOEs are inefficient and tend to overlook private shareholders' interests.

The endorsements come on the heels of President Xi Jinping's pledge last month to "unswervingly consolidate and develop the public ownership system", accelerate state economy restructuring, and make SOEs "stronger, better, and bigger."

Shares of SOEs have outperformed the broader market this week. An index tracking central SOEs has gained more than 3 per cent, compared with the almost flat benchmark Shanghai Composite Index.

State firm China Railway Construction jumped about 11 per cent this week, and China Communications Construction surged roughly 25 per cent, on track for its biggest weekly gain in seven years.

Yi Huiman, chairman of the China Securities Regulatory Commission, urged the securities industry to explore an idiosyncratic system to value different types of stocks, so as to better allocate resources.

"Excessively low valuations of listed SOEs have hampered their ability to develop through additional share sales, M&A, or restructuring," Shenwan Hongyuan Securities said in a report this week that promoted SOE revaluation.

Central SOEs, which are controlled by the Chinese central government, trade at 9 times earnings, compared with 16.8 for the broad market, and 43.9 for listed private companies. That means private firms in China are roughly five times higher valued than their state peers.

Investing in SOEs is safe and potentially rewarding as these firms are key to China's national security and technological innovation amid "power rivalry", Shenwan Hongyuan said.

Industrial Securities Co said central SOEs are the main force in China's quest for tech self-dependency and supremacy, so SOE reform ...

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