China’s World-Record Stock Market Tumble
PetroChina was introduced to the world on Shanghai’s stock exchange just 10 years ago. Recently, it has begun to drop like a stone on the same exchange – losing a world-record $800 billion in market value – an amount which could purchase every listed company on Italy’s stock exchange, or circle the Earth 31 times with $100 bills. And it’s only going to get worse.
Bloomberg reported on October 29, 2017 that PetroChina Co. had just suffered the biggest stock slump in world history – yet analysts are not yet convinced that it has finally hit bottom. The state-owned energy producer has lost so much money, it’s now considered the world’s biggest-ever wipeout of shareholder wealth. And it may only get worse. If the average analyst estimate compiled by Bloomberg proves right, PetroChina’s Shanghai shares will sink 16 percent to an all-time low in the next 12 months. If you’ve followed us for any period, you may recall that we reported on July 8, 2015 that China at that time had just had a shocking drop to its stock market of $3.2 TRILLION… in just 3 weeks.
READ IT AGAIN: China Stocks Drop $3.2 TRILLION in 3 Weeks
For years, the economic policies of the People’s Republic of China have caused shock waves throughout Europe and North America, as the Chinese significantly undervalued their currency to give themselves an unfair trading advantage, according to the United States and the International Monetary Fund. Now, it seems that karma has finally bit China in its assets.
The stock has been pummeled by some of China’s biggest economic policy shifts of the past decade, including the government’s move away from a commodity-dependent model (which Canada also needs to break free from) and its attempts to clamp down on speculation on the Shanghai and other stock exchanges that turned PetroChina into the world’s first trillion-dollar company in 2007.
This, plus the fact that oil has dropped over 44% in the last 10 years, as well as Chinese President Xi Jinping’s ambitious plans to promote electric vehicles, and it’s easy to see why analysts are still freaking out about this stock. It doesn’t help that PetroChina shares trade at 36 times its estimated 12-month earnings – which, according to Bloomberg, is 53% more propped up than its global oil company competitors.
“It’s going to be tough times ahead for PetroChina,” said Toshihiko Takamoto, a Singapore-based money manager at Asset Management One, which oversees about $800 million in Asia. “Why would anyone want to buy the stock when it’s trading for more than 30 times earnings?” For example, Intel, the global tech giant, is currently selling for a price-to-earnings ratio of about 15.6 – and that stock is just now being recommended.
What must be making investors very nervous is the fact that many of the factors behind PetroChina’s slump have been outside the company’s control. When it listed in Shanghai in 2007, bubbles in both oil market were primed to burst, and the globally-destructive financial crisis was just around the corner. What’s even more frightening – the 82% drop in PetroChina is nothing compared to Shanghai’s China 300 Energy Index (like the Fortune 500), which has fallen 73% in the last decade.
You will likely remember that Greece in 2012 almost swamped the entire European Union with its debts of €323 billion. Now take a deep breath and contemplate this – the Shanghai stock exchange lost that much value on July 8, 2015 alone. In fact, by the time the financial bleeding had stopped, as we reported in the article above, the Shanghai index had lost 13 times more value than that entire debt of Greece. In fact, it lost the basic total value of the entire Japanese economy.
If the Chinese didn’t already have the 2nd largest economy on earth, this would have easily destroyed them beyond repair. The World Economic Forum stated that in 2017, China still had the second-largest economy on earth, at $11 trillion, or 14.8% of the world economy. Japan is in third place with an economy of $4.4 trillion, which represents almost 6% of the world economy. The United States, the #1 economy in the world, is worth about $18 trillion – or 25% of the entire world’s economy. However, they also have $20 trillion in debt today – which means that they couldn’t pay off the debt even if they used every dime the entire nation made in an entire year.
China’s losses in 2015 were so spectacular, if you made $1 million payments toward this debt, you would have to do so… every single minute, of every single hour, of every single day, of every single year – for the next 146 years. Again, that’s $1 million a minute – for nearly 1.5 centuries. If you laid out this debt in $100 bills, they would stretch the 238,855-mile distance to the moon and back… 6 times.
And as Citigroup Inc. analyst Nelson Wang points out, most of PetroChina’s shares are owned by the Chinese government, so the hit to minority investors hasn’t been as big as the loss in total market value might suggest. However, one wonders what the government of China would do, should this slide continue unabated?
On Hong Kong’s exchange, where PetroChina first listed in April 2000, stockholders have enjoyed strong long-term gains. The company’s so-called H shares have returned about 735 percent since their debut, outpacing the city’s benchmark Hang Seng Index by more than 500 percentage points. In other words, if you bought $10,000 in the stock initially, it would be worth $73,500 today. (Dual listings are common among Chinese companies, which often sell stock to international investors in Hong Kong.)
Stay tuned. folks – China’s volatility on the world stage could cause a massive domino effect worldwide. No nation is an island, especially one that is 18% of the entire world’s economy. And, as the Economist wrote in March 2015:
“BY MAKING things and selling them to foreigners, China has transformed itself—and the world economy with it. In 1990 it produced less than 3% of global manufacturing output by value; its share now (in 2015) is nearly a quarter. China produces about 80% of the world’s air-conditioners, 70% of its mobile phones and 60% of its shoes. The white heat of China’s ascent has forged supply chains that reach deep into South-East Asia. This “Factory Asia” now makes almost half the world’s goods.”
Like it or not, China’s rise or fall financially will do the same to the rest of the world. Let’s just pray they can crawl out of this latest hole they have dug themselves, before this does happen to the rest of us.