Hungry for IPO's in 2009? Do Chinese and Brazilian firms have the capacity or guts to test the market?

It seems just yesterday that Chinese IPO's where the talk of the town. Even if you were not buying them yourself, it still seemed as if everyone else was. When you consider what an IPO is, it's no wonder why the investment communities appetite for them has disappeared.

When companies go public they offer a certain portion of their company to shareholders. In exchange shareholders invest their money in hopes of seeing a given company grow and prosper. If a company grows and prospers, shareholders are rewarded by seeing the value of their investments rise. If the company preforms poorly investors see their investments loose value.

If you have cash lying around would you trust your money in a company looking to expand or finance some project in the context of the economic climate today?


Chinese companies are feeling the pinch, turning to banks instead the stock market to raise the capital they need. The Financial Times reports “Mainland companies last year raised a record $100bn in IPOs on exchanges in Shanghai, Shenzhen and Hong Kong – far more than established bourses in New York or London.”

(Click here to access the full article from the Financial Times)

In response, the Chinese Government is attempting to encourage banks to lend to companies looking for expansion capital. The recent interest rate cuts make lending cheaper, which will help entice banks to lend, but if history repeats itself Chinese banks may find themselves with a great deal of outstanding loans that can not be repaid.

This happened in the late 90's and it could happen again. Especially if the Chinese economy is not able to weather the global recession as well as many hope. Additionally, many IPO's from 2006 and 2007 benefits not from legitimate investments from people who had faith in their business, but rather from speculative investors who wanted a piece of the profits.

Chinese media, Xinhua, reports Pricewaterhouse Cooper (PwC) expects IPO's will rise in value by 45% in the second half of 2009 as a result of the government stimulus package. PwC forecasts Companies will raise about 150 billion yuan (22 billion U.S. dollars) through IPOs in China in 2009.”

State media in China should be analyzed with a bit of skepticism for obvious reasons (it is filtered if you didn't know). This fact alone contradicts with the figures presented by the Financial Times that in 2009 over $100bn was raised. It would be nice to be told what base measure they are using when they figure the 45% increase. If anyone feels like checking out the PwC report you might be able to find out.

(Click here to access the full article from Xinhua)

Brazilian IPO's also seem to be having a tough time, as reported by Bloomberg LP today.

“The point isn’t that VisaNet isn’t interested in listing, but that there have been problems, in this market, in pricing the offer in a way that shareholders will be satisfied,” said Victor Mizusaki at Sao Paulo-based Itau Corretora, the brokerage unit of Brazil’s biggest non-state bank. “There is a deadline to turn in all the paperwork and to price the offer, and the time limit was running out.”

Brazil’s boom in IPOs dried up last year with only four companies going public compared with 64 in 2007 as the global financial crisis sent the benchmark Bovespa index down 41 percent and reduced investors’ appetite for riskier emerging-market assets. Companies raised more than 70 billion reais through initial and additional stock sales in 2007, according to data from exchange owner BM&FBovespa SA.

(Click here to access the full article from from Bloomberg LP)

All in all, I'd say IPO's are going to far and wide in the developing world for 2009. All these countries have seen the incredible attraction they garner when times are good and investors are flowing with confidence and money. They also see that when times are bad, people will pick and choose their investments very carefully. Meaning far less appetite for risky investments, in particular with companies that have yet to face the pressure of being traded and valued within the context of this chaotic and unpredictable market.

Chinese shares hit 20-month low

While the the global economy slowed in 2007, China, the dragon of global economic growth recorded GDP growth of 9-10%. However, it has been a different story for Chinese stock markets and internationally listed shares.

The Shanghai Composite Index, which was just recently one of the best performing markets on the planet, rising over 200% in just a few years time... is now ranked as one of the world's worst preforming benchmarks.

The drop was bound to happen for a variety of reasons. One reason in particular which I would like to focus on has been because of risky speculation by the common Chinese citizen.

It is not exactly a good thing when a large portion of the money moving in and our of your financial markets, particular in equities and bonds is being moved by people like this:


Investors watch the electronic board at a securities exchange in southwest China's Chongqing Municipality, Aug. 18, 2008. Chinese shares slid more than 5 percent on Monday to a 20-month low. The Shanghai Stock Exchange closed at 2,319.87 points, down 130.74 points, or 5.33 percent, from the previous close.


Investors watch the electronic board at a securities exchange in southwest China's Chongqing Municipality, Aug. 18, 2008. Chinese shares slid more than 5 percent on Monday to a 20-month low. The Shanghai Stock Exchange closed at 2,319.87 points, down 130.74 points, or 5.33 percent, from the previous close.

As Chinese stocks and the economy surged, and the common Chinese person for the first time in centuries had a completely new way to store their wealth. In addition to believing their money was safe, much like it is in banks, the average person was seeing their savings (invested in securities) grow... A very rare and un-heard of concept in China. Even after the introduction of modern banking in China it was rare for people to earn significant returns from interest on their deposits, not to mention growth of 200% as they recently experienced from investing in stocks.

As a result there has been a tremendous influx of money into Chinese equity markets, many times by investors choosing stocks based off lucky numbers or anonymous tips. As you can see above, even in cities such as Chongqing, which is hardly as wealthy as places like Beijing or Shanghai, people have become fascinated by the stock market. They now sit days on end watching their life savings tick up and down on gigantic boards in trading houses located throughout the country.

Chinese stocks drop most in 6 weeks ahead of Opening Ceremony of Olympic Games

Zhang Shidong and Dingmin Zhang of Bloomberg LP report Chinese stocks have plunged ahead of the Olympic Games due to what analysts and investors say was a failure on the part of the Chinese Government to announce "market stablalizing" measures ahead of the games.

A great deal can change in China in just a months time. Considering the last time I visited was back in Sept-Dec of 2006, I'm sure a great deal has evolved. One thing, no matter the time difference in which people visited China or more particularly Beijing that seemed to remain with time was hope that the games would boost Chinese equities.




This has been a good lesson to avoid heading into markets with the "herd" or in laymen terms... the masses.

Beijing definetly has a boom town feel, but so do other cities in China. Other places, such as Shaang Xi province, a coal producing region do not (or did not back in 2006). Chinese people from Southern Economic Zones created in the late 90's and other regions which have grown rapidly over the past decade expressed concern the country was spending too much on the games to me.

One young man of 20 years from Guang Zhou, a Cantonese speaking region ajacent to Hong Kong told me "Beijing has the boom but is only able to back it up becuase of the government. Places like Shanghai and Shenzhen are boom towns but can back the talk and boom."

He may be right, as Olympic spectators are dazzled in the capital, they are seeing quite a show... trust me it will be a show when the games opening ceremony comes on TV at 8am (Eastern Standard Time).

The boom feeling in China is real, but not substantial enough to defy slumping global equities. The Shanghai Stock Exchange has grown 7 fold in the past 2-3 years. With the global credit crises, there is no mystery as to why China and other boom markets like Vietnam and India are plunging.

This will be a good lesson to the thousands of investors picking stocks based off lucky numbers and the belief that their investments can only grow. US investors are still learning this despite being from a country with long established financial markets.

When I was born in the mid 80's, Stock Exchanges did not even exist in China. Now that they do, both independent and institutional investors in China must learn to ride the bad times. Learn how ot depend on an income flow from investments. Learn how to not hit or yell sell when things drop. Learn how to properly evaluate equities, instead of using lucky numbers of other ways to pick stocks.

The list goes on... in Chinese Bear Markets 101.

Chinese stocks (on the mainland) surge over 4.5% in their biggest gain in over a month

The Shanghai Composite index which tracks the daily price performance of all A-shares and B-shares listedon the Shanghai Stock Exchanger rose 4.59% Monday.




The CSI 300 Index, a cap-weighted listing, tracks the daily price performance of the 300 most representative A-share stocks listed on the Shanghai + Shenzhen Stock Exchanges rose 5.13% on Monday trading.

Chinese markets are souring? The short answer (in my opinion):

- Financial on the mainland report better than expected earnings and developments
- Speculative investing in Olympic related Stocks.
- Oversold market
- Lower crude oil prices

For a full story, following the rise in China last night, check out the following story from Bloomberg LP.

China Stocks Advance Most in Three Weeks; Merchants Bank Rises -- Click here for full story

By Zhang Shidong and Chua Kong Ho

July 7 (Bloomberg) -- China's stocks rose the most in almost three weeks, led by banking shares, after China Merchants Bank Co. and China Citic Bank Corp. said first-half earnings probably more than doubled.

Merchants Bank, the country's most profitable bank, had its biggest jump in more than two months. Citic Bank, the banking unit of the nation's largest investment company, gained for a fourth day. Beijing North Star Co., the city government's property arm, jumped on speculation next month's Olympic Games will lure more tourists to the capital city.

``Fundamentals are very strong in China compared to any other Asian nation,'' said Liu Yang, managing director at Atlantis Investment Management Ltd. in Hong Kong, which oversees about $4 billion in assets, in a Bloomberg Television interview. ``Chinese stocks are trading at crisis valuations. Do they deserve to trade at crisis valuations? The answer is no. The market deserves a very good rebound from here.''