Translated by Andrew Vanburen from a Chinese-language piece in China Securities Journal
"BE FEARFUL when others are greedy. Be greedy when others are fearful,” Warren Buffett -- the "Oracle of Omaha" -- famously said.
In that case, now might be the perfect time to jump in as Chinese shareholders are looking more like deer in the headlights these days as they face the prospect of GDP growth much closer to single digits than double for the first time in years.
That is translating into a growing reluctance by firms to tap into the country’s capital markets, with IPOs hitting a 3-year low this half.
The cold raw numbers are as such.
IPO proceeds raised by 103 firms in the first six months of this year just eked past 70 billion yuan, setting a three year low for any half over the period.
Even more shockingly, the first half total proceeds raised by firms seeking to go public was less than half that seen just one year earlier.
And if not for Citic Heavy Industries adding its 4.1 billion yuan in announced IPO proceeds to the pot earlier this week, things would have been even more anemic.
Looking at the fully tallied totals for the January-May period this year, total financing by A-share listed firms stood at 174.4 billion yuan, down considerably from the year-earlier figure of 300.0 billion.
This year, 90 IPOs in the first five months attracted 64.5 billion yuan, much more sluggish than the 138 newly listed enterprises and their proceeds of 146.3 billion a year earlier.
The 70 billion yuan raised by IPOs in Mainland China this current half is the lowest in since 2009, with 160.7 billion seen in proceeds a year ago and 212.8 billion in the first half of 2010.
Price-to-earnings ratios tell a similar story of general market timidity.
Current average P/E ratios for A-shares listed in Shanghai and Shenzhen stand at around 31 times, much more affordable than the 46 times witnessed a year earlier or the 59 times recorded at the midpoint of the 2010 calendar.
Therefore, it might be a good time to take note of a word of advice from one of the world’s best known investors, Warren Buffett, who said: “Be greedy when others are fearful.”
Clearly, those firms anxiously waiting on the sidelines for their chance to sell shares in Mainland China’s capital markets are certainly experiencing some anxiety, bordering on fear in some cases.
And their reluctance to go public stems from the general market anxiety (read: fear) among investors.
So perhaps this is the sort of scenario Mr. Buffett was referring to when he encouraged his disciples to “be greedy?”
Just a thought...
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