Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24
THE GLOBAL WARMING CLIMATE CHANGE MEGA-TREND IS THE INFLATION MEGA-TREND! - 3rd May 24
Banxe Reviews: Revolutionising Financial Transactions with Innovative Solutions - 3rd May 24
MRNA - The beginning of the end of cancer? - 3rd May 24
The Future of Gaming: What's Coming Next? - 3rd May 24
What is A Split Capital Investment Trust? - 3rd May 24
AI Tech Stocks Earnings Season Stock Market Correction Opportunities - 29th Apr 24
The Federal Reserve's $34.5 Trillion Problem - 29th Apr 24
Inflation Still Runs Hot, Gold and Silver Prices Stabilize - 29th Apr 24
GOLD, OIL and WHEAT STOCKS - 29th Apr 24
Is Bitcoin Still an Asymmetric Opportunity? - 29th Apr 24
AI Tech Stocks Earnings Season Opportunities - 28th Apr 24
S&P Stock Market Detailed Trend Forecast Into End 2024 - 25th Apr 24
US Presidential Election Year Equity Performance in the Presence of an Inverted Yield Curve- 25th Apr 24
Stock Market "Bullish Buzz" Reaches Highest Level in 53 Years - 25th Apr 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Chinese IPOs Making Waves in the Market, but Beware of Bubbles

Companies / China Stocks Dec 16, 2010 - 08:01 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleDon Miller writes: Record fundraising activity in the market for initial public offerings (IPOs) is pushing valuations for Chinese companies to sky-high levels, raising concerns about a possible bubble.

IPOs are likely to raise more than $300 billion for issuers worldwide in 2010, exceeding the previous record of $295 billion in 2007, despite the sluggish economic recovery in Western markets.


In the first 11 months of 2010, IPOs worldwide already raised $255.3 billion in 1,199 deals, according to a "Year-end Global IPO Update" report from Ernst & Young.

And the red-hot Asian markets, led by China, continued to lead the recovery, raising the most capital ever. Asian issuers have raised $164.5 billion so far this year - already surpassing the $98.2 billion raised in the peak fundraising year of 2006 and accounting for 64% of total global IPO value so far in 2010.

That's more than four times the $40 billion in IPOs completed by the second-ranked North American market. Europe was third, raising $32.8 billion, far outdistancing the Middle East and Africa's $5 billion.

China's strong gross domestic product (GDP) growth and market liquidity allowed it to dominate, as issuers from Greater China (defined as the mainland, Hong Kong and Taiwan) made up over 46% of global IPO value. The region took in $117.9 billion, a 170% increase in total value over the same time frame in 2009. Save for the second-ranked United States, the leading IPO markets were all Asian, as Japan, India, South Korea, and Malaysia filled out the top six.

"Benefiting from relatively low interest rates in developed markets and abundant liquidity, global investors in the last 11 months have been avidly seeking exposure to the growth in Asia and other emerging markets. This trend is expected to continue," said Gregory K. Ericksen, Global Vice Chair for Strategic Growth Markets for Ernst & Young.

Top Three Deals Worth 25% of Total
The top three IPOs in 2010 were mega-deals that made up one-quarter of the value of total global IPOs.

The $22.1 billion privatization of the Agricultural Bank of China Ltd. was the world's largest IPO ever, and made up 9% of total IPO value globally this year, surpassing the $21.9 billion of another Chinese state-owned bank, Industrial and Commercial Bank of China.

Next in line was the $20.5 billion IPO of the Asian life insurance unit, AIA Group Ltd. in Hong Kong, a spin-off of American International Group Inc. (NYSE: AIG), which was followed by the $18.1 billion generated by U.S. automobile manufacturer General Motors Co. (NYSE: GM) after it emerged from bankruptcy.

Other highlights on the IPO front for 2010 included:

•Europe posted a massive 526% increase in capital raised during the first 11 months of 2010, compared to the same period in 2009.

•The top three business sectors for 2010 were financials with deals worth $74.9 billion, industrials at $52.7 billion and materials with $34.8 billion. Together the three accounted for 63% of total value.

•Eighty-six percent of global IPOs priced within their initial filing range, compared to a historical 10-year average of 74.3%.

•After unsuccessfully holding out for higher prices in 2009, private equity and venture capital firms caved in 2010, backing two-thirds of U.S. IPO listings, raising $39.5 billion - a 58% increase in value from the same period in 2009.
"Under pressure to release capital to investors and with limited access to credit, PE firms looked to public markets as an exit option, often accepting discounted valuations," Ericksen said.

China IPOs Notch Big Gains
China shut down its domestic IPO market for nine months through June 2009 as part of its efforts to cool its red-hot economic growth.

But since the market reopened, investors have been clamoring for shares, driving up initial offering prices. Domestic retail investors bought 80% of Chinese IPOs, reflecting a lack of participation by foreign investors.

Three of the top four IPO markets worldwide were located in Greater China in 2010.

Bolstered by the Agricultural Bank and AIA listings, the Hong Kong Stock Exchange dominated IPO markets in 2010, raising $61.2 billion or 24% of global proceeds. The Shenzhen Stock Exchange ranked second, raising $40 billion or 15.7% of the action, while the New York Stock Exchange came in third with $31.1 billion (12.2%). The Shanghai Stock Exchange ranked fourth, with 6.2%.

But Chinese offerings that reached U.S. markets were the biggest winners.

Mainland Chinese companies this year accounted for five of the 10 best-performing initial public offerings in the United States, although the No. 1 spot belongs to an Indian company - MakeMyTrip Ltd. (Nasdaq: MMYT), according to data compiled by Bloomberg News.

The best performing Chinese companies for 2010 were:

•Jinko Solar Holding Co. Ltd. (Nasdaq: JKS): +188%

•HiSoft Technology Intl. Ltd. (Nasdaq: HSFT): +175%

•China Lodging Group Ltd. (Nasdaq: HTHT): +82%

•SouFun Holdings Ltd. (NYSE: SFUN): +58%

•Camelot Info Systems Inc. (Nasdaq: CIS): +58%

Although listing on American stock exchanges requires meeting stricter accounting and disclosure standards, Chinese companies consider the rewards to be worth the trouble. Potential access to more capital and a New York Stock Exchange or Nasdaq ticker symbol are the main draws.

"It's the patina associated with the highest-standard marketplace in the world," Scott Cutler, executive vice president and head of listings for NYSE Euronext (NYSE: NYX) told The New York Times. "That means something when you're doing business internationally."

The feeding frenzy surrounding Chinese initial offerings has risen to new heights. Last week, six Chinese stocks started trading on the New York Stock Exchange and Nasdaq - the most ever in a single week.

Shares of Youku.com Inc. (NYSE ADS: YOKU), known as the YouTube of China, popped 161% in its first day of trading last week.

And e-commerce darling China Dangdang Inc. (NYSE: DANG), an online retailer being hailed as the Chinese Amazon.com Inc. (Nasdaq: AMZN), shot up 87% the same day.

Now, the staggering returns recorded by the Chinese companies that have gone public in the United States in recent months are raising warning flags for some analysts who say a bubble may be forming.

"If these IPOs continue to work, they'll play them until the merry-go-round stops," Scott Sweet, senior managing partner of the research firm IPO Boutique, told The Times. "And when it stops, it will stop with little notice - and it will be nasty."

Investor interest in Youku, for example, has dropped off. After an initial surge in the first trading days, the stock closed yesterday (Wednesday) at $33.30 a share, down 39% from its $50 high.

"Drinking the Kool-Aid - it's absolutely that," David Menlow, president of the research firm IPO Financial, told The Times. "When somebody on TV throws out the phrase, 'This is the Chinese equivalent of Amazon,' who's going to dispute its strength in an economy that just doesn't seem to want to stop?"

Chinese companies like Youku should be categorized as high risk, high reward, according to Menlow, who thinks many investors are star-struck by China's robust GDP and growing middle class.

American investors usually don't have much information about new Chinese companies, and the country is not known for its regulatory oversight of corporate activity and reporting.

"That is what looms in the shadows," Menlow says. "When one of these deals unravels because of accounting problems, restatements or anything that is going to eviscerate the foundation of the financials in a company, then we may end up having somewhat of a mini tsunami effect with the rest of the Chinese deals that are out there. It will be like dominoes that will fall."

Source : http://moneymorning.com/2010/12/16/chinese-ipo-market-waves-beware-of-bubbles/

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in