On Monday, China’s state-controlled energy company PetroChina debuted on the Shanghai stock exchange. It soared in value to more than US$1 trillion, making it the world’s largest company by market cap. Obviously, China’s euphoric investors have never heard of Warren Buffett.
Buffett, of course, is the legendary chairman and CEO of Omaha, Neb.-based Berkshire Hathaway. Backin 2003, he bought into PetroChina, which then traded only in Hong Kong and New York, to became its largest shareholder after Beijing. PetroChina shares took off, leading some to call him the “Sage of China.” As of last month, Buffett had clocked an 800 per cent return.
But earlier this year, Buffett began unloading his shares. By late October, just a week before PetroChina’s Shanghai debut, Buffett had sold out completely. Some observers chalked his sale up to pressure from activists angry over PetroChina’s activities in war-torn Sudan. But Buffett was clear in his reasoning: China’s stock bubble is “too hot.” Anywhere else, Buffett’s actions and comments would have doomed the stock offering. But in the eyes of Chinese investors, PetroChina is now worth twice as much as Exxon Mobil, even though the U.S. company has larger reserves and is more profitable.
As with many aspects of China’s booming economy, PetroChina’s US$l-trillion price
tag is more perception than reality. Beijing still owns 86 per cent of the company. What’s more, trading in PetroChina’s shares in Shanghai has little to do with their real value. Mainland Chinese investors are barred from investing outside the country, and there’s a limited number of companies in which to invest, so valuations get inflated. In fact, PetroChina shares in New York tanked this week. At least someone is paying attention to Buffett. M
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