The psychology of the shareholder - the WTO column

(Later this weekend at Chinabiz)

Shanghai - What never ceases to shock me is the herd mentality of the stock holders especially in their relationship with China. When I read the analysis of people who have a better understanding of the ‘buy’ and ‘sell’ options that reflect the shareholders’ limit choice to assess what they think about China, things are going downhill again.

It needed only the smell of what possibly could develop into a scandal surrounding China’s largest insurance company China Life earlier this week to turn around this volatile mood of the people who bet their savings on China.
Those people dumping their shares are the same ones who gave it US $ 3.5 billion in China Life listings at the New York and Hong Kong stock exchanges, an amount of money that even flabbergasted the China Life management and its investment bankers. Listings of any China-related venture were oversubscribed in a massive way until very recently.
That changed dramatically then the US Securities and Exchange Commission announced it would launch an investigation into possible irregularities during the IPO of China Life. Shareholders have also been after China Life with accusations of not disclosing all information during the IPO in December.
The Chinese government tried on Friday to soften the mood again of the investors but our manic-depressed investors who did not want to listen when they invested their money, seem to persist in shunning China-shares. There is not even a beginning of a proof that China Life actually did something wrong, but who cares, this is again about psychology, not about economy.

So, what is at stake? At least for this year IPO’s possibly worth of US$ 15 billion and more important: the future of some of China’s largest state-owned companies, including three of its four commercial banks. That explains why the Chinese minister of finance came out in support of China Life.
The problem is of course that those commercial banks alone, with their millions of transactions, tens of thousands of outlets are very hard to audit, even for the banks themselves. When the mood of the investors goes negative, there will always be incidents to support their mistrust. That cannot be changed by any regulatory changes to gain trust of the investors.
In the past week, the damage was already considerable. China Resources Peoples Telephone, a mobile-phone operator in Hong Kong resorting under the State-Council, lost 8.2 percent on its first day of trading and the supporting Swiss UBS investment bank had to buy their shares because they could not raise enough interest in the market.

The mood is down, not only among the investors, but probably also at the boardrooms of many state-owned companies, even those who have a solid founding. Now, that is a shame.

Fons Tuinstra