China’s state capitalists celebrate their soaring shares

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pension fund as part of a reform process. A boost in the valuation of the firms could eventually help the state meet its pension obligations. The new valuation system, says Meng Lei of UBS, a bank, is an attempt to help investors understand the broader implications of this transfer of state-owned capital to pensioners.

Is there a more traditional case for investment in companies such as CSPM? After a surge of excitement this year, state firms’ share prices are falling again. A new index tracking them is down by 11% since its peak on May 8th. The 291 state-owned shares that are included in the China coverage of MSCI, an index operator, trade at around six times forward earnings, or close to all-time lows, according to Goldman Sachs, a bank.

This is about half the ratio for non-state companies. Even before the recent fall, SOES were trading at a hefty discount. Officials now hope to match their fine words with actions.

The regulator that oversees state assets recently switched its main gauge for evaluating company performance from net profits to return on equity. Analysts at CICC, a Chinese investment bank, reckon this might help lift capital returns and operating results. In which case, the interests of state capitalists and private investors would be better aligned than at present.

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