Stock market efficiency - Vanke
In this week lecture,l have learned about the stock market efficiency.The efficient markets hypothesis,popularly known as the Random Walk theory which indicated that the stock price reflect the value of the firm,and none investor can gain excess profit from it,this hypothesis play a key role among investors and financial managers.
According to Fama(1970),the stock market has been divided
into three parts according to the level of efficiency which are weak,semi-strong,and strong efficiency.To some extent,the level of different efficiency has raised the awareness of investors from gaining extra profit through the market.
In this Blog,l would like to use a case of china’s largest property developer to explain what learn from the stock market efficiency.
The company called Vanke which is the largest chinese property developer.It has become the leading real estate company in china since it get into the house market in 1988.It is a large sized company which possess about 210 million square meters contractual property in china.The case was started from another chinese company called Baoneng Insurance,a private enterprise which has kicked off the fight by adding the share of Vanke to take up about 24% stakes , exceed the state-owned conglomerate China Resources as Vanke’s largest shareholder in December 18th 2015 (Financial times,2016)Meanwhile,the share price of Vanke has experienced a unbelievable increased from 13.81¥ per share to 24.43¥ per share which was 2 times as the start of this month. It is not surprised if we link this performance with the efficient market hypothesis,the share price increased dramatically because it has made quick reaction follow the information of Baoneng’s investment strategy,some investors think that this information has demonstrated that Vanke is a brilliant real estate company which attract many investors,it has bring the positive emotion to Vanke’s investor.
However, Baoneng Insurance company is extremely complex company,the money in this company is mainly gained from a kind of insurance called“universal insurance”which is a new insurance combined with the life insurance and short-term investment.That is to say,the money which Baoneng used to add its stakes possess high risk.Due to this reason,the top management team in Vanke unwilling to let Baoneng takeover the company as their largest stakeholders.Except for Vanke ,Baoneng Insurance company has also adding stakes in 8 different company in China, the chair of Vanke describe Baoneng as a “barbarian”.
Subsequently.Vanke has published a share-swap deal with shenzhen metro as a response to prevent Baoneng’s takeover.But the drama is,because of the driver of money,the second largest shareholder China’s resources and Vanke’s shareholders have rejected the proposed from Vanke top management team, raising questions over whether the state-owned conglomerate would vote with Baoneng rather than management.
After that,the chair of Vanke has another negotiation with the second largest property developer in china called Evergrande,joined the battle in August.And eventually nominate the board number by increasing its stakes.On the other hand,the insurance regulator has published some limitations to limit the high-risk and return products which means Baoneng has been supervised by regulator in fund speculation area.
Now with the China’s resources leave the game and sold the stake for 5.4＄billion to shenzhen metro,and the announcement of China Evergrande for not steeping further in control Vanke’s stake ,Vanke has won this 1 year battle.
However,some retail investors has suffer a great loss of this battle.let’s look back to the Vanke’s stock market.After three days significant increase from 16th December to 18th December,Vnake’s top management team has announced a delist due to the official reason of recapitalize.But may be the true factor is to consider a measurement to fend off the Baoneng’s invasion.However,because of the successive rise of stock price,many retail investors have put their money in Vanke’s share,expect to gain a lot from this battle.But to their unexpected is the company has delist just after 3 days.
After delist,Vanke’s share price has already reached the peak at 24.43¥ per share.But many experts have stated that Vanke’s share price was overestimated because of the affection of the Baoneng’s purchasing plan.Meanwhile,at this time,Shanghai composite index suffer from a huge loss,bottoming out from 3635.77 to 2737.77 during the period in January 2016.It seems that there is a significant plummet waiting for Vanke’s resumption.
(The index of Shanghai composite index)
After that,Vanke has been delist for totally 6 month until the announcement of resumption in 4th July 2017.And the share price during that time experienced the significant increase .Many retail investor was suffered a great loss.
From this case, l have learnt that the stock market is completely random and no one can predicted it.Investors can not predict before the information has published and cannot get abnormal profit.What’s more,l believe that maybe Vanke was overestimated at that time,but it will not last for a long time.Because as we can see from this battle,the core concept is that Vanke is a really brilliant real estate company so that many other company want to get advantage from it,the well-structure and performance company like Vanke will eventually earn high performance in the stock market ,which l mean today is Baoneng,may be the other day is another company want to invest in it.So the best way for investors to this kind of company maybe is to hold it for a longtime, if the market is efficient.
2/11/2017
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