PetroChina Tops GE’s Market Cap
During the Internet boom, GE and Microsoft battled each other for the honor of being the world’s most highly-valued company. While Microsoft has settled in at a meager $292 billion in stock market value, GE’s stock market value has soared to just over $410 billion. Even with its impressive increase, however, GE has been surpassed in value by ExxonMobil, which has been riding the rise in the price of crude oil to nearly $90 per barrel. Valued at over $500 billion, ExxonMobil is now the world’s most valuable company by market cap.
But wait. The combination of oil and China is proving to be an even more potent recipe for stock market valuations. In mid-October, PetroChina surpassed GE with a valuation of over $430 billion, and is now closing fast on ExxonMobil. Traded on the Hong Kong Stock Exchange, PetroChina’s shares have surged by 13 percent over the past five months. The recent rally in Hong Kong, part of a record year for Chinese stocks, underscores PetroChina’s key role in supplying oil to the world’s fastest-growing major economy. “Chinese oil companies deserve higher valuations compared with their international peers, given the strong domestic economy and an expected influx of capital from mainland investors,” said Wang Jing, a senior oil analyst with Orient Securities Co. Ltd. in Shanghai.
In addition to the growth of the China market and potential discoveries that will add further to its reserves, PetroChina and its domestic rivals are benefiting from the Chinese government’s decision to allow its citizens to invest in Hong Kong-listed shares. Household savings in China total $2.3 trillion and JPMorgan Chase & Co. estimates $60 billion of that may flow into Hong Kong in the next year.
Not everyone is convinced that PetroChina’s valuation will see further increases, however. Despite impressive gains made on the 11 percent stake Warren Buffet’s Berkshire Hathaway bought in 2003, Buffet has been selling down his shares in the company. Berkshire Hathaway’s shares were worth $3.31 billion at the end of 2006, well above the $488 million that Berkshire paid for them, according to Berkshire’s latest annual report. Buffet has been clear to point out that he is selling on grounds of valuation, not due to any criticism of the company.
When China began the reform of its state-owned sector in the 1990s, the government stated its goal of creating world leaders in key sectors of its economy. China appears to have found a champion in the case of PetroChina.
