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China Mobile, Unicom Sink in Wireless' Global Undertow
With mobile phone operators around the globe watching helplessly as investors dump their stocks, China Unicom Ltd and China Mobile (Hong Kong) Ltd in particular must be asking, "Why us?"
The two Chinese telecommunications companies are unencumbered by the deep debt and uncertain growth prospects that plague wireless operators in Europe, yet their share prices seem inextricably linked to those of their ailing overseas cousins. With a bear market breathing down the neck of investors, many fund managers are treating all telecom companies with equal disdain.
"It's more or less like panic," says Manish Singhai, a portfolio manager at Alliance Capital Management (Singapore) Ltd, who believes the valuations of Unicom and Mobile have been unduly punished. Fund managers are "extrapolating from the European companies without really bothering to differentiate between fundamentals," he says.
The share prices of the Chinese operators looked like they were pushed down a stairwell on Wednesday, with China Mobile plunging 9.73 percent to HK$29.70 (US$3.81) and Unicom falling to an intraday and record low of HK$7.75 (US$0.99) before staggering up a notch to close at HK$7.85 (US$1).
Their price collapse on the Hong Kong exchange, which continued an eight-month downward trend for the stocks, was especially baffling given that Unicom on Tuesday reported its 2000 profit was 3.23 billion yuan (US$390.2 million) -- more than double what industry analysts had forecast. Several investors said they were taking their cues from the lousy overnight performance of the Dow Jones Industrial Average and the tech-heavy Nasdaq Composite Index, which tumbled 6.17 percent.
Some analysts also blamed the slide on devilish details in Unicom's earnings report. While the profit figure was juicy, they said, it was largely the result of high-interest gains thanks to lower-than-expected spending on network equipment.
But some market watchers said those arguments don't justify the extent of Unicom's decline, or the roughly parallel fall of China Mobile, which hasn't even released its earnings report yet.
The bigger saboteur appears to be the miserable stock performance of European cellular companies, and fund managers' gut response to steer shy of telecom plays.
European operators last year spent gobs of money buying licenses to provide future wireless services such as high-speed Internet and video. But many investors have lost confidence in those companies' ability to earn big money selling the new data services, and they fear banks have grown too tight-fisted to finance the multibillion dollar licenses.
By contrast, China's wireless market is booming without China Mobile and Unicom having to roll out sophisticated and expensive next-generation services. The companies are also cash rich.
"Unicom isn't in the same position as the Europeans," Unicom Chairman Yang Xianzu pleaded to reporters at his earnings announcement on Tuesday. "Why should we be dragged down with them?"
Singhai agrees that the companies' fundamentals are solid, but he said their valuations may be subject to the volatile swaying of market sentiment for some time. "The next three-six months are going to be choppy," he said. "Whenever liquidity exits any market, these stocks are the initial victims."
Source: chinadaily.com.cn
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