Friday, March 10, 2006

Chinese rally makes car and retail stocks pricey

HONG KONG (Reuters) - China's automobile and retail stocks are now expensive by global standards after a strong run this year, but steel and metals firms may still be attractively priced compared with their peers.

The MSCI China Index <.MSCICN>, which tracks China stocks traded in Hong Kong and New York, is up 13 percent so far this year. China's domestic market has also emerged from a four-year slump with the benchmark Shanghai Index <.SSEC> up 10 percent so far.

"Even for the most bullish investors, it is probably worth doing a check on whether stocks have been overbought," said Credit Suisse China research head Vincent Chan, adding that Internet, consumer goods and financial stocks are the most overbought while independent power producers the least.

Automobile production capacity exceeded demand by 2 million units last year, causing vehicle profits to fall by 38 percent. But that does not prevent bourgeoning Chinese auto makers from enjoying a hefty price premium over established names abroad, partly on the prospect that Chinese brands will make inroads in foreign markets.

Brilliance China (1114.HK: Quotazione, Profilo) trades at 43 times forecast 2006 earnings while Qingling Motors (1122.HK: Quotazione, Profilo) trades at 25.

By comparison, German luxury car maker BMW (BMWG.DE: Quotazione, Profilo), which has a China joint venture with Brilliance, trades at 11.1 times earnings, while Nissan Motor (7201.T: Quotazione, Profilo) of Japan trades at 10.9, and South Korea's Hyundai Motor (005380.KS: Quotazione, Profilo) at 10.8.

High expectations have made China's auto stocks vulnerable. Brilliance skidded 10 percent after disappointing the market on Monday by forecasting an operating loss on its Zhonghua sedan.



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