New trad­ing board — bit­ter mem­o­ries still haunt in­vestors


In the 1980s, the shares of many Ja­panese man­u­fac­tur­ing en­ter­prises were trad­ing at hun­dreds of times their prospec­tive earn­ings, while the av­er­age PE (price earn­ings) ra­tios in other ma­jor mar­kets were not much higher than around 15.

It was con­sid­ered nor­mal at that time for Ja­panese in­vestors to place crazy pre­mi­ums on the shares of com­pa­nies they be­lieved were in­vest­ing their rev­enues on build­ing new busi­nesses and con­quer­ing new mar­kets. That no­tion fell out of fa­vor soon af­ter the Ja­panese eco­nomic bub­ble burst and the col­lapse of as­set val­ues.

De­spite the in­tro­duc­tion of numer­ous in­no­va­tive in­vest­ment met­rics in re­cent years, tra­di­tional think­ing has pre­vailed in many highly in­ter­nal­ized mar­kets, par­tic­u­larly Hong Kong. When Cathay Pa­cific, the city’s flag car­rier, was fac­ing earn­ings head­winds, it went back to the ba­sic strat­egy taught in busi­ness schools — cost cut­ting.

In­deed, even mighty HSBC had to greatly re­duce its op­er­at­ing ex­penses, in­clud­ing shut­ting down branches, trim­ming staff and sell­ing as­sets, to win back in­vestors’ con­fi­dence.

But, some stock an­a­lysts are be­gin­ning to chal­lenge the con­ser­vatism of Hong Kong in­vestors who, they said, may have missed the op­por­tu­ni­ties open to them by the new econ­omy that’s dom­i­nated by tech­nol­ogy com­pa­nies, in­clud­ing those that have be­come new dar­lings to many Chi­nese main­land in­vestors.

In­vestors need to wean them­selves from their fix­a­tion on earn­ings to eval­u­ate, or ap­pre­ci­ate, the po­ten­tial of these new age com­pa­nies that are striv­ing to be­come the Ama­zon or Face­book of Asia.

Ama­zon is not mak­ing a lot of money com­pared with, say, Wal­mart, its ma­jor ri­val in re­tail­ing. And yet, its share price surged to a record high of $1,017 apiece last week, valu­ing the online re­tailer among the top 10 en­ter­prises in the United States in terms of mar­ket cap­i­tal­iza­tion.

A few in­vest­ment an­a­lysts in the US have ques­tioned the sus­tain­abil­ity of this tech craze, rais­ing the specter of an­other burst­ing of the tech bub­ble that can be many times the size of the dot-com boom that went ka­put in 2000.

In Hong Kong, the stock ex­change is push­ing for a new board to trade in tech com­pa­nies that have lit­tle, or no, earn­ings track record. See­ing the blood­bath tak­ing place in the Growth En­ter­prise Mar­ket, there’s lit­tle won­der that few peo­ple out­side the stock ex­change are get­ting too ex­cited about an­other new board.

Amid warn­ings that a burst of the tech bub­ble may not be empty talk, plans for a new board on the Hong Kong stock ex­change for tech en­ter­prises have raised eye­brows among in­vestors.

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.