China Goes Berserk for IPO's…Sound Familiar?

Where have we seen something like this before?

Ahhh, the year 1999…Y2k was on everyone’s mind, all the boys had their hair pushed forward and up, and our eardrums were pounded mercilessly by that Rob Thomas/ Carlos Santana abomination that attacked from every radio speaker coast-to-coast.

More memorable to me than any of that was the dot com frenzy that turned the entire country into a teeming mass of tech stock speculators.  As the NASDAQ worked it’s way up to 5000, each day we were treated to stories about the guy who takes the garbage out at a tech company driving a Ferrari, or the NYC cab driver who makes million dollar trades while stopped at red lights. 

We also had the pleasure of watching hundreds of ETrade and Ameritrade commercials featuring investing tips from Anna Kournikova as well as the likes of Jackie Chan kicking his laptop in mid-air to make a trade.

When I read the article in The Times about the fact that the Chinese have gone wild for IPO’s, I couldn’t help but think back to our own unrequited love affair with mass stock speculation…

From The Times Online:
Spectacular gains for Shanghai stocks and a blazing resumption of initial public offerings have enticed nearly half a million novice Chinese investors to open trading accounts in less than a week.  

With the leading Shanghai indexes nearly 90 per cent higher than they were in January, the appetite for risk has returned and the race to join the investment fray has intensified. Your-Mart, a retailer, which listed on Shenzhen exchange last week, soared by over 90 per cent in its first day of trading, while two other offerings – a drugs and a cable company – were more than 500 times oversubscribed.

Well, shall we let China’s middle class in on how this ends?  I believe we’ve all seen this movie before, about ten years ago.  It certainly didn’t have a satisfying conclusion for those who didn’t leave the theater in time or who bought their “tickets” on margin.

At least a dozen IPOs are immediately planned in what brokers in Hong Kong expect to be a release of pent-up demand. Companies expected to float include at least two securities groups, a road-building company, a brewery and several engineering groups.

Here’s how this works…bankers will use the earlier, successful deals as examples to entice everyone into the game.  The deal quality will inevitably decline until the point when they start taking every rickshaw-puller and dumpling maker in Shanghai public.

Then, look out below.

The trouble is, it’s tough to tell how much longer this can go on for in the meantime.

Sources:

Novice Chinese Traders Dash to Market (Times Online)