Buffett calls for caution over China stocks By Geoff Dyer in Shanghai and Sundeep Tucker in Hong Kong
Thursday, October 25, 2007
Warren Buffett urged investors yesterday to be cautious about the Chinese stock market, which has risen nearly sixfold in the past two years.
Speaking on a visit to Dalian in north-east China, Mr Buffett said he was always sceptical about markets that had risen as sharply as Chinese shares have.
“We never buy stocks when we see prices soaring,” said Mr Buffett, the renowned investor and chairman of Berkshire Hathaway, the investment group. “We buy stocks because we are confident of the company's growth. People should be cautious when they see prices rising.”
Mr Buffett joins a number of other senior figures who have warned about the risk of overvaluation in the Chinese market, including Hong Kong tycoon Li Ka-shing and Alan Greenspan, former chairman of the US Federal Reserve.
Mr Buffett was speaking a week after announcing that Berkshire Hathaway had sold its entire stake in PetroChina, the Chinese oil group. Mr Buffett made the initial investment in 2003 and the share price has increased by more than seven times since then.
“It was an easy decision to buy PetroChina. It was one-third of what it was worth, maybe a quarter,” he said. “I doubt in the present market I would find something like that as the market has been too hot.”
Rising share prices also led this week to the end of General Electric's plans to buy a 7 per cent stake in Shenzhen Development Bank. GE agreed to pay around $100m for the stake two years ago. But by the time the Chinese group completed a shareholder reform needed for the deal to be completed, its share price was six times higher.
The rising valuations for Chinese stocks will be felt by overseas banks, many of which seek to invest in domestic brokerages if a ban is lifted next year.
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