Banking & Finance

Journey to the (mid) West

Buffett welcomes a record China delegation to Nebraska

Berkshire Hathaway CEO Warren Buffett plays bridge during the Berkshire annual meeting weekend in Omaha, Nebraska

Hosted 2,000 Chinese in Omaha

Many Chinese stock investors will be familiar with a spoof song that went viral on the internet in 2008. Taking an existing melody, an anonymous netizen rewrote the lyrics into a new ditty called I am standing on the summit of Rmb48 PetroChina. It became part of the collective memory in the wake of the stock market crash in 2008, and proved so popular that it was covered by a host of singers and even referenced by PetroChina’s boss at an annual general meeting.

The PetroChina unit went public in Shanghai in November 2007. For most retail investors the listing was their first opportunity to own a slice of the oil major. They grabbed it: more than a million people subscribed to the IPO. Even more jumped in on the first day of trading, which saw PetroChina surge to Rmb48 ($7.6) a share. But as the song put it, that was the summit of the stock’s achievement. PetroChina’s Shanghai A-shares have traded down below Rmb10 for most of the last seven years.

In hindsight, chastened investors should have taken more notice of a concurrent investment decision by Warren Buffett. Just prior to the PetroChina debut in Shanghai, Berkshire Hathaway offloaded its stake in PetroChina’s Hong Kong-listed shares. Buffett acquired the position in 2003 for $450 million. Timing his exit perfectly in 2007, he walked away with a $3.5 billion profit.

The sale cemented the Sage of Omaha’s reputation in China where he is dubbed the “God of Stocks”. Andrecently, more Chinese have been turning up for his advice in person. In 2013, more than 400 of them showed up at Berkshire’s annual shareholder meeting in Nebraska (see WiC193) but since then ‘Buffett tourism’ has swelled. According to Sina Finance, the Chinese delegation at this year’s event – held earlier this month – reached almost 2,000.

Most of the visitors were new to the gathering, with many travelling on tours put together by their investment advisors.

“I’m more likely to bump into friends here than in Shanghai’s financial district… some simply slept outside the venue the night before in order to get a front-row seat,” Xu Tianshu, a fund manager, wrote on his blog.

Xu, who has been to the Berkshire meeting for seven years in a row, says China’s surging A-share market has ignited more interest from American investors too. “Only Chinese investors turned up at the cocktail party [the Chinese] held last year. This time many American investors crashed the party and exchanged ideas,” he explained.

The Financial Times noted that a simultaneous translation of Buffett’s remarks were rendered into Chinese for the first time. Buffett and his longtime business partner Charlie Munger also granted 100 of their Chinese visitors a private audience immediately after coming off stage. Some were given the chance to present their questions to Buffett and Munger too, while American investors now wanted Buffett’s view on investing in China.

“In the past Buffett tended to dodge the questions about China, claiming he doesn’t know the country particularly well. But this year he was more willing to offer his views,” said Phoenix Finance.

So what is Buffett’s take? The 84 year-old is still optimistic about the China market’s prospects, despite the astonishing Shanghai bull run. He also drew parallels between the rise of China and the rise of the United States, before suggesting that the destinies of the two countries were intertwined. “As Charlie said earlier, China and the United States are going to be the superpowers for as far as the eye can see,” he predicted.

Interestingly, when CNBC later interviewed Buffett and his friend Bill Gates (a fellow Berkshire director) the investment ace was less bullish than the Microsoft founder. Asked on live TV which currencies they would bet on for the decades ahead, Buffett was steadfast in support of the dollar. Gates, on the other hand, branched out boldly, saying he would rather own more of China’s currency, the renminbi.

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