Posted on December 26, 2007 - by Chee Wan

Financial Phenomenon

By: Brendan Lee

In the oil industry, PetroChina’s profit is halved compared to Exxon Mobil, yet market cap of PetroChina is larger than Exxon Mobil by 39%.

In the insurance industry, Ping An Insurance’s annual profit is only equivalent to a month of American International Group’s. Yet market cap of Ping An Insurance is much higher.

In the telecom industry, China Mobile is worth 41% more than AT&T, and brings in only 2/3 of its revenue.

In the banking industry, Industrial & Commerical Bank of China Ltd (ICBC) has grown to almost double the size of Bank of America, with a third of BOA’s earning.

Does it make sense?

This is debatable, and the key word is ‘GROWTH’. If those China stocks are able to grow much faster compared to their US counterparts, then the answer is yes, then it will make sense.

But looking from a risk/reward point of view, I would think that those US stocks are better investments now.

Exxon Mobil may not be able to match PetroChina’s growth, but it is able to grow at 10% – 30% annually. With a P/E of 13.3x, valuation does look with attractive.

AIG may not be able to match Ping An’s growth, but it is able to grow at about 30% annually. With a P/E of 10x, this stock looks like a great bargain!

Both Exxon Mobil and AIG have a longer track record in the market, and they had proven to be strong even in bad times. And as a matter of fact, nobody knows if those China stocks are still able to sustain its stalla performance if US goes into a recession.

Asia equities have been on the uptrend for 5 years now, and valuation are trading at the upper end of the range. With so much uncertainties in the market now, I would prefer to stick to cheaper valuation stocks, larger, and more established companies.

From portfolio allocation point of view in 2008, I would be overweight developed market and underweight emerging market, & overweight big caps stocks and underweight small caps stocks.

Hence for myself, I would rather be a buyer of Exxon Mobil and AIG in 2008.

Source: Metal Trading

Related posts:

1. What can happen to Sembawang Music Centre will happen to financial advisers
2. Is the March 2009 Bull rally over ?…….this question was put to me by some financial journalists yesterday
3. The entrepreneur financial adviser