IPO CONSENSUS (Positive Consensus/Bear Market Indicator) Billionaires growing on trees in China

May 29, 2015

All the hand wringing about China’s slow motion economic deceleration hasn’t reached the bourses of Shanghai and Shenzen. Since the Chinese government loosen regulations on its citizens to buy stocks, the Chinese equity market has exploded.  More significantly the level and voraciousness of Chinese companies going public has been breathtaking.

” China’s frenzied market for initial public offerings and soaring prices for other stocks have hatched about two dozen billionaires in the first six weeks of the year and added to the fortunes of many others.”

Case in point Wang Zhenghua, chairman of Spring Airlines instantly claimed a net worth of $1.3 billion, when his company’s stock went public. It didn’t just go up, it went up by the daily allowable maximum in the first nine days. Since the IPO the stock has increased almost 400 percent.

“Even the prospect of an IPO can be enough to create a billionaire. Zhejiang Ant Small & Micro Financial Services Group is the finance affiliate of Alibaba Group and owner of electronic payment operator Alipay; it’s about to close on a round of private funding that values the company at $50 billion ahead of an anticipated IPO, according to people familiar with the matter. The new valuation, doubling a previous figure, created 13 billionaires, including Alibaba’s chief executive officer Jonathan Lu and chief people officer Lucy Peng, as well as Wang Yulian, the mother of David Yu, the private equity partner of Alibaba founder Jack Ma. Wang owns 4.6 per cent of Ant Financial, according to company filings.”

Zhang Lu, an analyst at Capital Securities, summed it up best, “This is a man-made scarcity”.

The Chinese Government in an attempt to preserve whatever momentum it can has gone all in on stimulus, whether it is through relaxing banking reserve requirements, loosening capital market accessibility provisions or essentially forgiving debt.

These behaviors and hysteria are textbook 1999 at the height of the US internet stocks frenzy. We know how that story ended. Market forces settled that debate. The question is how a centrally planned government sails through these waters? Can the gluttony continue? History says no. Unfortunately there is no arrival time so enjoy the party and stay near those exit signs.