After a rapid ascent and then descent, many Chinese stocks are now back in bargain territory. The Hong Kong Index, for example, now trades for less than 10 times trailing earnings. While the government-mandated transition to a consumption-based economy has led to some economic dislocation, reforms around one sector may mean that stocks are undervalued even further. In fact, one industry leader could be valued at a sharp a discount to intrinsic value if reforms are pushed through as planned. The Chinese Government Wants Out Of The Pipeline Business As part of a broad reform of the energy sector,… Read More
After a rapid ascent and then descent, many Chinese stocks are now back in bargain territory. The Hong Kong Index, for example, now trades for less than 10 times trailing earnings. While the government-mandated transition to a consumption-based economy has led to some economic dislocation, reforms around one sector may mean that stocks are undervalued even further. In fact, one industry leader could be valued at a sharp a discount to intrinsic value if reforms are pushed through as planned. The Chinese Government Wants Out Of The Pipeline Business As part of a broad reform of the energy sector, the Chinese government announced plans in May to spin off pipeline assets at the two largest oil & gas companies, PetroChina (NYSE: PTR) and Sinopec (NYSE: SHI). Industry competitors argue that the two companies’ ownership of 89% of the country’s total pipeline capacity acts as a barrier to entry for others. By operating the pipeline assets independently, other upstream explorers will have easier access to the nation’s pipeline transportation capacity. While the government has not released a timeline for finalizing the reform, analysts are expecting spinoffs to take place in the next six months. During the recent period of excessive… Read More