26 year old China's richest person worth more then Micheal Dell
Sent in from Larry Wu in China. also in the Times
A couple of days ago two lists of “the wealthiest people in China” were released successively one after another, by Forbes and by Rupert Hoogewerf, a former employee to Forbes China and now an independent researcher. Both lists have Ms. YANG Huiyan (read as “Young Hwee-yen), a 26 year old girl, as the richest person in China, with a net asset of US $16 billion (by Forbes) or US $17 billion (by Mr. Hoogewerf). This would make her the 8th richest person in USA, surpassing Michael Dell (the founder and major owner of Dell) on the Forbes 2006 Richest American List, or the 15th richest person surpassing Steven Ballmer (Microsoft CEO).
Forget about the surreal young age of this girl billionaire. That is only the result of a common tactic in today’s China: That business owners register their enterprises under the name of their young inheritors, sometime even babies, to legally avoid the yet-to-come estate tax. The real story here is that Ms. Yang’s company, a real estate conglomerate named the Country Garden Group, posted a revenue of only US $1.0 billion in the year of 2006. In comparison to Dell, whose revenue in last four quarters reached US $58.2 billion, people must wonder why the owner of a much smaller company is richer than Michael Dell.
The reason is firstly, of course, that Ms. Yang has more shares in Country Garden than Mr. Dell has in Dell. But more important, Country Garden is valued much higher on the Hong Kong Exchange, where it is listed, than Dell is on NASDAQ. Forwarding Price-to-earning(per share) ratio, or PE, a common tool used by investors to decide how high a stock is valued, is about 17 for Dell, ant it is 52 for Country Garden. That means, for each one dollar net income generated, the company Country Garden is viewed 3 times as valuable as Dell.
The high PE on Hong Kong market is only a mini-reflection of the even hotter domestic Chinese markets, i.e., the Shanghai Exchange and Shenzhen exchange. Average forwarding PE on these exchanges has reached 60 above. No wonder many western observers, including Alan Greenspan, said that Chinese stock market is a bubble now.
But they could have missed some critical factor, that China is an economy keep growing on an average 12.2% in past ten years, while the average GDP growth of USA is only 5% for the same period. In investment we use PEG as a useful tool to adjust the PE ratio against growth. PEG is PE ratio divided by its growth rate. Ideally, PEG of different companies should be the same. That means, if a company growth rate is two times higher than the other one, its PE ratio should be two times higher too. Now let’s take the two economies, China and USA, as a whole, and use PEG to compare average PE of their public companies. Since China GDP growth is 2.44 times of USA’s, the 60 average PE is not unreasonable in comparison to the average PE of about 20-25 at American markets.
Is Chinese stock market a bubble? The answer may be “not yet”. Obviously the current high PE ratio is based on an optimistic projection that China will continue its phenomenal growth in the next decades. If Chinese economy stumbles, the current stock price will become too high and turn itself into a bubble. But we cannot ignore another possibility, that Chinese economy will grow for more than another decade at the same speed, even higher. In that case, the list of Chinese richest people will bring more surprise to us. Watch up, Bill! Chinese are chasing you.
A couple of days ago two lists of “the wealthiest people in China” were released successively one after another, by Forbes and by Rupert Hoogewerf, a former employee to Forbes China and now an independent researcher. Both lists have Ms. YANG Huiyan (read as “Young Hwee-yen), a 26 year old girl, as the richest person in China, with a net asset of US $16 billion (by Forbes) or US $17 billion (by Mr. Hoogewerf). This would make her the 8th richest person in USA, surpassing Michael Dell (the founder and major owner of Dell) on the Forbes 2006 Richest American List, or the 15th richest person surpassing Steven Ballmer (Microsoft CEO).
Forget about the surreal young age of this girl billionaire. That is only the result of a common tactic in today’s China: That business owners register their enterprises under the name of their young inheritors, sometime even babies, to legally avoid the yet-to-come estate tax. The real story here is that Ms. Yang’s company, a real estate conglomerate named the Country Garden Group, posted a revenue of only US $1.0 billion in the year of 2006. In comparison to Dell, whose revenue in last four quarters reached US $58.2 billion, people must wonder why the owner of a much smaller company is richer than Michael Dell.
The reason is firstly, of course, that Ms. Yang has more shares in Country Garden than Mr. Dell has in Dell. But more important, Country Garden is valued much higher on the Hong Kong Exchange, where it is listed, than Dell is on NASDAQ. Forwarding Price-to-earning(per share) ratio, or PE, a common tool used by investors to decide how high a stock is valued, is about 17 for Dell, ant it is 52 for Country Garden. That means, for each one dollar net income generated, the company Country Garden is viewed 3 times as valuable as Dell.
The high PE on Hong Kong market is only a mini-reflection of the even hotter domestic Chinese markets, i.e., the Shanghai Exchange and Shenzhen exchange. Average forwarding PE on these exchanges has reached 60 above. No wonder many western observers, including Alan Greenspan, said that Chinese stock market is a bubble now.
But they could have missed some critical factor, that China is an economy keep growing on an average 12.2% in past ten years, while the average GDP growth of USA is only 5% for the same period. In investment we use PEG as a useful tool to adjust the PE ratio against growth. PEG is PE ratio divided by its growth rate. Ideally, PEG of different companies should be the same. That means, if a company growth rate is two times higher than the other one, its PE ratio should be two times higher too. Now let’s take the two economies, China and USA, as a whole, and use PEG to compare average PE of their public companies. Since China GDP growth is 2.44 times of USA’s, the 60 average PE is not unreasonable in comparison to the average PE of about 20-25 at American markets.
Is Chinese stock market a bubble? The answer may be “not yet”. Obviously the current high PE ratio is based on an optimistic projection that China will continue its phenomenal growth in the next decades. If Chinese economy stumbles, the current stock price will become too high and turn itself into a bubble. But we cannot ignore another possibility, that Chinese economy will grow for more than another decade at the same speed, even higher. In that case, the list of Chinese richest people will bring more surprise to us. Watch up, Bill! Chinese are chasing you.
No comments:
Post a Comment