Buffett Says Investors Should Be `Cautious' on China (Update3) By Zhao Yidi and Kyung Bok Cho
Oct. 24 (Bloomberg) -- Billionaire Warren Buffett said investors should be ``cautious'' about China's stocks after the country's benchmark index more than doubled this year. ``We never buy stocks when we see prices soaring,'' Buffett told reporters today in Dalian, northeastern China, where he's visiting a subsidiary of his Berkshire Hathaway Inc. ``We buy stocks because we're confident of the company's growth. People should be cautious when they see prices rising.'' Buffett this month said Berkshire had sold its stake in PetroChina Co., which has risen 76 percent this year to become the world's second-biggest company by market value. China's CSI 300 stock index has climbed 48 percent since May 17, when Li Ka- shing, Asia's richest man, said there ``must be a bubble.'' The index has risen 174 percent this year, the biggest increase among 91 stock benchmarks tracked by Bloomberg. Investors in China have opened 46 million trading accounts this year, nine times last year's amount, as individuals poured their $2.2 trillion in savings into equities. The demand has pushed up valuations of China's stocks to the highest in the world. ``Buffett is right about China stocks, whose valuations are too high,'' said Wang Zheng, who manages the equivalent of $500 million at the asset management unit of Everbright Securities Co. in Shanghai. ``It doesn't make sense any more to still play in such a market. It's about time to pull out of it.'' PetroChina Buffett said he was ``appreciative'' of the performance of PetroChina, the nation's biggest oil producer, and that he is doubtful he can find another stock like it. Berkshire owned more than 10 percent of PetroChina's publicly held shares as of the end of last year, a stake that fell to 3.1 percent as of Sept. 30, according to disclosures. The company has sold all of its holding, Buffett said in a Fox Business Network interview on Oct. 18. Buffett learned about buying well-run, out-of-favor companies while studying under Columbia University business professor Benjamin Graham, an advocate of value investing. The 77-year-old said today he's seeking to invest in large Asian companies with businesses he understands, denying Chinese media reports that Berkshire invested in China Life Insurance Co. ``If you understand a business and buy at a reasonable price, there's no risk,'' Buffett said. ``We've never realized a loss because we understand the businesses that we buy in.'' China, Hong Kong Only government-approved investors can trade in Chinese shares in the mainland. Some companies, such as PetroChina, are listed in Hong Kong and can be bought and sold by any investor. The CSI 300 rose 0.9 percent today and reached a record on Oct. 17. Hong Kong's Hang Seng index, which climbed to a record the next day, fell 0.2 percent today. Buffett's trip to China today and a visit to South Korea tomorrow were planned by Iscar Metalworking Cos., an Israel-based toolmaker in which Berkshire bought an 80 percent stake last year. Iscar, which owns Korean and Chinese manufacturing facilities, was Berkshire's first non-U.S. acquisition. As chairman of Berkshire, Buffett transformed the Omaha- based company over four decades from a failing textile maker into a $200 billion investment and holding company with businesses ranging from ice cream and underwear to insurance and corporate- jet leasing. Buffett, whose investment decisions are followed worldwide, said the company's strategy wouldn't be derailed by problems in the U.S. housing market. Mortgage defaults by people with poor credit histories have triggered a worldwide rout in debt and stock markets, and U.S. Treasury Secretary Henry Paulson last week called the housing slump ``the most significant current risk to our economy.'' ``The subprime crisis is a real problem in the U.S.,'' Buffett said. ``But we have lots of problems in the U.S. We went through two world wars, we have other issues. We don't go in and out of the market.'' To contact the reporter for this story: Zhao Yidi in Dalian, China, at [EMAIL PROTECTED] ; Kyung Bok Cho in Seoul at [EMAIL PROTECTED] . 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