The year of the rabbit proved to be a torrid one for China-focused investors. Will the year of the dragon prove more auspicious? Warren Buffett certainly hopes so.
A video of the Oracle of Omaha playing the ukulele and singing an old American folk song, I’ve been working on the railroad, was aired on Chinese state TV as part of its new year’s celebrations over the weekend (click on the screenshot below to watch the video).
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His appearance sparked a great deal of debate among Chinese internet users – indeed bafeite, as Buffett is known in Chinese, was among the top trending topics on popular microblogging site Weibo yesterday.
The comments were mostly very positive – Buffett is a hugely well-known and respected figure in China, both for his investment track-record and for high-profile investments in Chinese companies, most notably Berkshire Hathaway’s near 10% stake in Chinese electric car and battery manufacturer BYD. Many suggested after watching his performance that they should now buy shares in Chinese train companies.
However, some internet users questioned the wisdom of singing a song about railways given continued public anger over a train crash near Wenzhou last summer, in which 40 people were killed, and a series of ongoing corruption scandals relating to China’s rapid high-speed rail buildout. One economics-literate Weibo user wondered whether Buffett was guilty of building “bridges to nowhere” a la Japan in the 1980s, a reference to the over-investment in infrastructure that some economists ascribe as having contributed to the country’s near two-decade-long stagnation.
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While it has since emerged that Buffett had in fact recorded the video a year earlier, and did not intend it to be aired as part of this year’s new year’s festivities, the fact that he agreed to its broadcast at this time can nevertheless be seen as a high-profile attempt to shore-up confidence in the outlook for China’s economy and stock markets, which have taken a battering over the past 12 months.
Shanghai was among the world’s worst-performing stock markets last year, with the Shanghai Composite Index shedding 22% in 2011, and this weak performance hit China-focused investors hard. Buffett’s Berkshire Hathaway underperformed the S&P 500 for only the second time since 1990 last year, while its profits also suffered. Other high-profile China bulls, such as Fidelity’s Anthony Bolton, suffered huge losses. His China Special Situations Fund saw a fall in its share price of 20.3% between its launch in April 2010 and November 2011, while its net asset value fell 21% during the same period.
But Chinese markets have rallied so far this year, with the SCI up 5.4% ytd at close of trading last Friday – Chinese markets are currently closed for the new year holiday. Individual retail investors account for nearly half of the total participants and a disproportionately large proportion of trading on Chinese A-share markets, and CCTV’s new year’s coverage attracts hundreds of millions of viewers.
Perhaps Buffett’s all-singing serenade will reassure them that the market rally is likely to continue?