Which bank is the most valuable in the world, measured by its market capitalization? Is it Citigroup? Bank of America? HSBC in the UK? UBS in Switzerland?
None of the above. According to this August 23, 2007 article from Reuters, it’s a bank in China, called Industrial and Commercial Bank of China Ltd (ICBC).
“Last month ICBC overtook Citigroup as the world’s biggest bank by market value and is worth more than US$280 billion. Citi is valued at around US$239 billion.”
According to my rough calculation using data from Reuters, ICBC earned about $6.6 billion net income in 2006. Citigroup earned $21.5 billion in the same period. Hmm … 1/3 of the earnings, 20% more market value.
And which life insurance company is the most valuable in the world? It’s not a Chinese company yet. AIG is still #1, but China Life is #2, larger than the French company AXA, the German company Allianz and the Dutch company ING. The earnings story is the same. The Chinese company has much smaller earnings but it has higher market value than the global giants.
It just shows how out of whack the Chinese companies’ values have become. Yes the Chinese economy is growing fast, but having the world’s No. 1 bank and No. 2 life insurance company? I don’t think it’s rational. Back in May I thought China was in a bubble. The bubble just became a lot larger. The Shanghai stock exchange index rose another 40% in 4 months since May 2007, or how about up 220% in one year? The P/E on the other Chinese stock exchange reached 70 [source]. Scary stuff.