Buffett's rejected US$500 million bid for a Chinese stock

Buffett's recent announcement of a rejected US$500 million bid for a Chinese stock is like a rock thrown into the murky pool of the China stock market.

Chinese investors after hearing the news have been scuffling around to find out which Chinese company is that while the China stock market continues to decline.

The situation is very interesting. Its like a lot of people surrounding a big pool of water trying very hard to find out where the rock has dropped into the pool but ignoring the fact that the rock has dropped into the pool and created waves.

Unless Buffett he himself says it out, there is no way to know which company out of the 1000 plus listed company in China that Buffett is interested to buy. But we can do some analysis and determine some basic facts. Like for example from Buffett's speech, we can say that the deal is not successful because the bidding price may be too low. On this argument, we can further say that Buffett is interested in a China share listed on the China stock market and not in the Hong Kong stock market. It is a strategic investment and not an institutional investment.

If the stock Buffett is interested in is listed in Hong Kong, he could have just bought it openly like what he has done with PetroChina and will not be rejected, unless of course it is a substantial purchase amount. There is also one thing to add. Buffett says that it is a good deal and when the environment is suitable, you will see him doing big investments in China. It is believed that the environment that Buffett is referring to is the policy that restricts foreign investments in China.

Chinese investors while searching around to find out which company Buffett is interested in has neglected the fact that Buffett is once again interested in the China stock market. Chinese investors only see on the surface which stock Buffett is interested in and did not think deeper on the background of his recent decision to buy a China stock. Things like why Buffett is interested only recently and not when SSE was at 6000 or 5000 or 4000 points. This should be the key point to note.

Currently the SSE PE ratio is lower than S&P. Although there are a lot of factors like high inflation causing low confidence in the stock market, but maybe with this recent move by Buffett, it may be time to sit down and re-think and analyse the environment again and look at those companies which you think are worth to start investing in again.