China's pension fund has recouped the loss it made from its investment in China Petroleum and Chemical Corp, whose shares rose Wednesday to the highest level in the past two years amid strong corporate earnings.

Local-currency Class-A shares of the country's biggest oil refiner, also known as Sinopec, rose to a 27-month high to close at 4.22 yuan (51 US cents) Wednesday, erasing the investment loss of the pension fund, which is worth 124 million yuan, took when it bought 300 million A shares in an initial public offer priced at 4.22 yuan each for 1.27 billion yuan in August 2001.

Sinopec has also paid investors a combined dividend of 0.152 yuan per share since it went public.

"The pension fund has recouped its investment as it picked a fundamentally sound stock at the very beginning when it bought shares," said Lu Liang, an analyst with China Securities Co Ltd.

"For the pension fund that needs cash to pay benefits every year, companies' dividend payment and fundamentals matter more than the swings in market price."

When shares of Sinopec were first traded on the local stock market in August 2001, Chinese investors speculated on troubled firms on hopes of a corporate turnaround that would reward them with hefty gains.

Sinopec's price tumbled to its historical low of 2.80 yuan on January 29, 2002, causing the social security fund to lose 426 million yuan in its investment in the firm.

Since the beginning of the year, the buying focus has shifted to big-capitalized stocks with solid earnings such as Sinopec and Baoshan Iron and Steel Co Ltd.

Shares of Sinopec have risen 40 percent this year and Baoshan Iron and Steel has gained 73 percent, outperforming a 5.5 percent rise on the benchmark Shanghai Composite Index.

Sinopec's net income rose 63 percent to 14.80 billion yuan for the period ending in September as China's 8.5 percent economic growth in the first three quarters boosted demand for crude oil and petrochemical products.

Netherlands-based ING Group projects Sinopec will report an 8 percent increase in per-share earnings in the fourth quarter of the fiscal year.

"We believe that China oil and gas shares have healthy upside on a 12-month basis, aided by a good combination of low valuation, healthy operating cash flow and good underlying growth prospects," said ING.

China allows the social security fund to invest up to 40 percent of its assets in the stock and bond markets to meet benefit payments to the estimated 200 million retirees over the next 30 years, according to an estimate by the World Bank.

(Shanghai Daily December 4, 2003)