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Inside China's Insane IPO Market: Full Frontal
We've said it before and we'll say it again: China's equity mania truly is the gift that keeps on giving, and not just for those who are riding the wave, but also for those who, like us, appreciate the humor in a giant, margin-fueled bubble that’s captivated millions upon millions of semi-literate housewives and banana vendors turned day traders.
While there are some signs that the bubble in Chinese stocks may be set to peak — such as brokers looking to curb margin trading — rest assured that the PBoC is on the case, cutting policy rates twice in a month in an effort to ensure the country's stock market miracle continues to overshadow a bursting real estate bubble and a decelerating economy in the minds of Chinese investors.
One area that's been particularly hot this year is the Chinese IPO market, which has spawned companies like the now famous Beijing Baoefung Technology which, until Thursday, had traded limit-up every single day since its March IPO. Here to shed some light on just how ridiculous the IPO market in China has become is Morgan Stanley:
Since January 1, 2014, a total of 225 companies have IPO'd in China's A share markets. The mean performance since IPO is 418%, with trailing P/E currently at 92x and EV/EBIT at 105x. Mean yoy EPS growth in the year prior to IPO was 4%. Total market cap is now over US$500bn.
We have used an 'interstellar' metaphor before to discuss China's A share markets. In this context the IPO markets are Blue-White, the hottest stars in the A-share universe...
In every industry group except the two IPOs in Energy, performance on the IPO date was between 43% and 44%. What this means is that for the vast majority of the other 223 of 225 IPOs, the stock rose limit up (20%) at the open and then by the additional limit restriction to a 20% gain during the day.
To put it mildly, this suggests a market that has not been discriminating in relation to pricing, at least early on.
It also explains the huge subscription volumes for IPOs and the surge in new account openings since China allowed individuals to open more than one account in mid-April. Investors have come to see IPOs as a sure-fire way of making high returns over a short period of time.
Performance over longer time horizons has been more variable. The average return has been 418%, since the date of IPO (itself an eye-opening number). However, energy IPOs have lagged, returning “only” 160%. Media (773%), and Software and Services (1125%) are way out in front.
The mean trailing P/E is 92x trailing, with no sector trading below 50x trailing. The most expensive industry groups are Software (311x), Media (140x) and Retailing (134x); the cheapest are Diversified Financials (53x) and Semiconductors (53x).
We also provide in the Exhibit historical EPS growth for 2014 yoy vs 2013. The mean EPS growth for the stocks that have IPO'd is just 4%. The only industry groups with double-digit historical EPS growth at the time of IPO are Food & Staples Retailing and Diversified Financials (securities firms helped by strong stock market volumes). In seven sectors, the mean EPS growth was negative in the year prior to IPO.
* * *
In sum: since the beginning of 2014, the 225 companies that have gone public in China have returned an average of 418% on their way to an average P/E of nearly 100X while growing earnings by an average of just 4%. Most absurd of all, software IPOs have returned 1,124%, have an average P/E of 311X on earnings growth of -5%.
But remember, HSBC's Head of China Equity Strategy Steven Sun "wouldn't call [Chinese stocks] a bubble."
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Something doesn't sound right.
Sum Ting Wong
more like a hydrogen filled blimp than a bubble
"Something doesn't sound right."
Then your volume is to low
/s
keep your umbrella near, a shitstorm is brewing...... youtube.com/watch?v=tjMkqFmRGL4
My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do... www.jobs-review.com
Is she, by any chance related to
my classmate's sister-in-law, my classmate's step-mother, my classmate's sister, my neighbor's ex-wife, my neighbor's half-sister, my neighbor's aunt, my neighbor's mother, my neighbor's step-aunt, my friend's step-aunt, my friend's half-sister, my best friend's aunt, my best friend's mother-in-law, my co worker's step aunt, my roomate's mother-in-law, my buddy's mother-in-law, my buddy's step-sister?
They make WAY more than $87 a hour on www.iamaidiot.com
You fogot; my stepson's uncle's third wife's window cleaner's aunt's second cousin, twice removed; pet budgerigar's mate.
No problem. Get in. Get out. Profit.
Xiaomi IPO coming up. Probably in US.
what is the proxy for shorting china? does anyone know a good one?
When tangibles have the lowest growth - and intangibles the most growth - you can be certain you are riding the unicorn to the first rainbow on the left.
Black Tulips, South Seas Company, and now the Binary castle in the sky.
Not full frontal... it's gone Full Retard...
ho lee fuk
the boc will end up buying all the munis, all the stocks, and all the bonds
Give them some credit, they are te ones that invented paper money.
The Chinese also invented toilet paper.
https://answers.yahoo.com/question/index;_ylt=A0SO8wZi01dVDKgAbO9XNyoA;_...
There are no coincidences only levels of absorbance.
“…an average P/E of nearly 100X while growing earnings by an average of just 4%. Most absurd of all, software IPOs have returned 1,124%, have an average P/E of 311X on earnings growth of -5%. ”
Yes, perhaps it is absurd… perhaps they know something foreigners don’t suspect… and perhaps they have overlooked a few factors that might, or will, spoil their party.
I recently examined a Financial Report of the US Government… did I ever uncover a pile of… well, I found a few confusions and confessions and accounting fairy tales.
I found, for example, that the GDP includes components that subtract from production; that government accountants made 75-year projections as if the government would not pay interest on its debt instruments during that time.
And then there were street gangs and drug cartels, the government’s – and China’s – role in arming, protecting and forming alliances with such gangs and cartels… and a dozen or so other items. They all point to a conclusion that a vast operation is being perpetrated… I began this Part 2 (of my examination) with the question, ‘What financial shock do Judeo-Bolsheviks plan?’ (Part one and Part two) Do they plan to inflate the dollar to zero… repudiate the federal debt… Issue Treasury bank notes…?’… And, how do China’s ghost cities fit into this unprecedented operation?... I would like to think that Americans could stop this horror; but, I don’t think it’s possible. They are a conquered nation; not by ordinary means, but by a lethargy induced my medication, an ignorance molded by indoctrination, and a corruption brought on by a mania for dope, foul language and perverted sex.
the thing that is freaking everyone out is the new brics bank and china specifically has locked western banks out of china except as fee collecting deal makers and not much of that except from the western side. the people you speak of will not stand for this. recent events have put them at a distinct disadvantage. the tide has turned and accelerating. the only answer is the economic destruction of china even if it destroys the west(britain ww2). it doesn't seem humans can avoid our self destructive fate.
The curious thing about BRICS is that while they propose to “lock out western banks” – that is, by-pass the dollar – they have built their alternative on dollars.
You see, every member of BRICS possesses a considerable stash of dollars in the form of US Treasuries.
As of Jan 2015: China held $1239.1 billion of US Treasuries; Japan: $1238.6 billion; European Union, $1.1 to $1.3 trillion; Belgium: $354.6 billion; Caribbean Banking Centers: $338.5 billion; Oil Exporters: $290.8 billion; Brazil: $256.7 billion; UK: $207 billion; Switzer: $205.5 billion; Hong Kong: $172 billion; India: $91.2 billion: Russia: $82 billion; among many others.
Of course, these amounts do not reflect private foreign holders as nominee holders for such central banks.
With such large holdings of US Treasuries, they are trapped; they can’t let go. If any of them give signals that they plan to disgorge such securities in any but trifling amounts, it will trigger a panic sell-off of US Treasuries that would drive the dollar to zero within hours.
Such a result would wipe out half their (central banks’) collateral; and, thereby, destroy their banking systems.
Let them create their “alternate” global reserve currency – even if it’s called an SDR . It will still be built on top of a house of cards: the US dollar.
Nothing will change… people will get that warm and fuzzy feeling that “something” is being done to correct an evil… Judeo-Bolshevik bankers and munitions makers will buy another day to plunder the earth to a Stone-Age condition… until the dollar is inflated to zero. Then we will discover if there is any gold left at Fort Knox.
With such a prospect, you’d think that someone would take measures to create an alternative currency… apart from criminal and useless classes, of course.
the dollar can't be avoided as long as it still 60% of transactions in the world. the brics will phase it out as the dollar phases out, just like any other currency.
the treasury holdings is defense against a usa(or soros) forex raid until then. the point of the brics bank is to provide an outlet, an alternative for a segue out of the dollar. it is the chinese oft repeated wish to have a fluid basket of currencies and commodities determine forex.
"Yes, perhaps it is absurd… perhaps they know something foreigners don’t suspect".
Nobody knows fuck all, it's the same as it ever was.
NASDAQ 2.0 coming up for the Chinese. An 80% correction sounds about right.
NASDAQ 2.0 coming up for the Chinese. An 80% correction sounds about right.
360% correction and Gaia still would not care
hairless monkey's
normal foreigners are still restricted from owning class a shares in China right?
I wouldn't call it a restriction but rather a blessing.
They used to call Cambodia "The Killing Fields".
After this Chinese bubble breaks, they will call Cambodia "Disneyland".
bullish... 1000% more of yuan is more yuan.
We can learn from the chinaman.. if everyone bought in the stockmarket and got these returns with lots of QE we'd all be rich and it would cure the economy.
It's a nicer way than helicopter money and approved by the fed.
booyah!
It was good time, it was bad time....
Ain't no stock market bubble like a Chinese stock market bubble.
"The future's so bright I gotta wear shades."
It feels like we are already back in the stone age.
When this chinese bubble explodes, surely Chinese State will really need those artificial islands in the south sea to justify some media coverage far from the massive loss of capital of the average chinese investor.