The world’s largest IPO will reportedly be launched in China next week.
According to the Economist,
``THE initial public offering of Agricultural Bank of China, the country's third-largest bank, looks set to become the biggest IPO on record. On July 6th and 7th the bank raised a reported $19.2 billion in a dual listing on the Shanghai and Hong Kong stock exchanges. If the bank takes up a further 15% allotment of shares, that would value the deal at a total of $22 billion, slightly more than the offering in another Chinese bank, ICBC, in 2006. In the 1990s telecommunications was the investors' choice but in the last decade the biggest IPOs have been mostly in the financial sector, and mainly of Chinese banks”
Hong Kong, whom dominated world IPOs in 2009, will be eclipsed by China’s state-owned Agbank’s IPO.
According to USA Today,
``In 2009, Hong Kong was the world's largest IPO market, with companies raising a combined $32 billion in capital, according to Dealogic, a data-tracking firm. This year, China is on track to assume the mantle, with $31.7 billion raised by early July.
``The reason for these markets' strong performance amid a tepid global environment: "Investors are looking to put their funds in high-growth regions, and the financial tsunami" has affected growth in Europe and the U.S., says Edward Au, southern China regional leader in Deloitte's National Public Offering Group. (Deloitte is an auditor for AgBank's IPO.)
``AgBank's dual listing in Shanghai and Hong Kong could raise as much as $22.1 billion if an option is exercised to boost the number of shares for sale. This would break a $21.9 billion world record set in 2006 by Industrial & Commercial Bank of China.
``Monday, AgBank will also begin offering an undisclosed number of shares to Japanese investors, says Kenji Yamashita, a spokesman for Nomura, one of AgBank's lead offering coordinators in Japan.”
None the less, the changes in the global IPO market dynamic, as shown above from Renaissance capital, suggests that most of the capital raising activities have now been directed towards Asia.
In other words, Asia has seized the leadership and that global capital may accelerate inflows to Asia, despite doom and gloom predictions from mainstream experts.
The Agbank offering comes amidst the tinges of the unresolved transition from China’s bear market cycle.
The bear market seen in the China’s Shanghai index [upper window] (Bloomberg), emerged in the backdrop of an economic growth slowdown amidst the global financial crisis. China’s official growth figures fell by half 13% to 6.2% [lower window] but conspicuously escaped a recession (tradingeconomics.com).
Yet as I have been propounding; why should the Shanghai Index collapse by 71%, even more than the US markets, when she has eluded recession unlike the US?
From here we have explained that ‘fundamentals’, which has been the deeply entrenched mainstream wisdom, do not sufficiently ‘rationalize’ market activities, as the latter have been more influenced by liquidity flows (or my Machlup-Livermore paradigm).
Yet, from such premises, despite the heavy demand for Agbank share, the success of Agbank’s IPO listing isn’t clear, considering that China has been tightening in order to prevent an overheating or a bubble from running berserk.
Yes, the Shanghai index has bounced off strongly up (3.69%) from the dive (6.66%) during the previous week and could be work favorably to Agbank’s advantage.
Asian IPO’s have generally been well received this year (Reuters) and most likely the Agbank’s one day performance could also register a positive return.
But measuring IPOs for one day performance would appear equivalent to betting on a horse race-an inappropriate approach for serious or prudent investors.
Nevertheless IPO activities are one of the major indicators for bear markets.
And this has been accurately pointed out in July of 2007, see The Prudent Way To Profit From IPOs!, where in terms of Philippine based IPOS (upper window) surged.
And this appears to be same trend for global markets, as seen in the lower window (renaissance capital) as the boom climaxed.
Even as Asia today has commanded the biggest share of IPO activities (renaissance capital) it doesn’t automatically imply that Asian markets are in “bubble proportions”.
IPO activities in 2009 haven’t even surpassed the previous highs. And even if Asian IPOs do exceed the 2006 highs, other indicators will need to be scrutinized to ascertain the risk of bubbles.
All these suggest of the following:
-a deepening and growing sophistication of financial markets (of course, it could also mean a bubble)
-reduction of the excessive reliance of financial intermediation away from the banking system
-competition should bring about pricing efficiency, expanded accessibility and lower transaction costs which should enhance structural economic growth
-more emergent signs of decoupling
-relative higher equity returns are likely to put Asia on top of the heap and attract more capital flows
-as capital would likely to chase higher relative returns, IPOs activities in Asia are would likely to experience a feedback loop mechanism—high returns lead to more IPOs and vice versa--at the risks of fostering bubble conditions.
IPO activities represent as one critical indicator of capital market development and bubble activities.
