Are the Chinese IPOs finished?

Imagine that you bought Amazon or Google at the IPO their stadiums.

Any money you put aside was worth a small fortune today. It would be as if you had won the lottery.

But like lottery tickets, the chances of choosing a winning IPO are very slim.

In China, however, there are IPO winners everywhere. [19659002] At the end of last year, it is Chinese literature that has materialized the dreams of investors. The spin-off e-book received bids for 9.48 billion shares, more than 625 times what the company was offering.

Fewer than 8,000 investors got hold of stocks. The rest had to go on the market.

The first day of trading, China Literature doubled

Investor enthusiasm broke the record previously held by ZhongAn Online Property & Casualty Insurance. Investors bought 391 times more shares than ZhongAn had to offer in 2017.

The stock also rose up to 57% on its first day of trading.

Then there is the Bank of Shanghai. Listed in 2016, investors asked for 763 times more shares than the bank was offering.

But if Chinese IPOs are so hot, why has smartphone maker Xiaomi lost its first day of trading? 19659013] Most investors would not think about buying a stock market listing.

The list of titles to be published is one where the enthusiasm for the title is the highest.

This could be the next big deal. If you do not get it now, you will lose a steadily rising share price, say the promoters.

But of course, they are simply trying to move the actions. An investment bank or broker may agree to buy a minimum number of shares as part of an IPO. But that 's only so that they can sell the title at a quick profit to a crowd of investors starving by the return.

That is why most stocks generally decline shortly after their listing.

And this is not different for Chinese IPOs. If you bought Chinese literature, ZhongAn and Shanghai Bank on the first day of trading, you would have dropped by 25%, 26% and 50% respectively.

But that does not mean that you can not make money. Take a look at the average increase in Chinese IPO days after registration in 2015.

Source: Bloomberg
[Click to open new window]

' No, this is not a fault of impression. Each month, the average IPO returned over 100% after only 20 days of trading. Amazing numbers, like winning the lottery for those lucky enough to get an allowance, Business Insider written

Chinese investors have the opportunity to double their money after only 20 days. Who would not want to jump on such quick profits?

But why did not Xiaomi explode the first day?

Have too many investors lost money by buying technology IPOs? Was the price of the company too high? Have not the promoters managed to sell the potential of Xiaomi, the Chinese apple?

From The Australian :

& nbsp; The stock made available to individual investors was multiplied by 9.5 offered shares, the company said last Friday. This is far from oversubscription rates for other IPOs in Hong Kong. Orders for a separate block for foreign investors slightly exceeded the amount offered.

Xiaomi's debut comes at a difficult time for Chinese stocks as investor sentiment has suffered from a growing trade dispute with the United States. Last month, Shanghai's key index entered bearish territory – a decline of 20% from its recent high – and the Hong Kong benchmark is down more than 10 % from the January peak. Didi Chuxing (Uber in China), Meituan-Dianping (a coupon e-commerce company), ByteDance (content platform) and Ant Financial are all potential IPOs in the near future.

But we can guess if the successes will be successful.

Remember the moderation

There is nothing wrong with a bit of speculative punt. And by speculation, I do not mean buying penny stocks. In fact, there are times when a stock of 20 cents is much safer than a $ 20 purse.

For me, a speculative bet is when the outcome is very uncertain. It could be that the company has a very short history against the competition. Or maybe you do not completely understand the business model or how it might look in 10 years

But with uncertainty comes the potential.

Investors do not like to buy investments when the outcome is uncertain. But if you happen to choose a winner, it's as if you had bought a Chinese IPO.

This is not the worst thing to do in the world. But you should not use the majority of your wealth to buy lottery tickets.

Your Friend,

Harje Ronngard,
Edited by, Money Morning

PS: He has predicts the economic collapse of Japan in 1989, dotcom AND subprime busts, as well as the populist wave that brought the Brexit and Donald Trump … all long before the mainstream media.

The controversial economist and bestselling author Harry Dent returns with a scary warning to Australia … In the new book of Dent Zero Hour he exposes everything. You can get your copy here

Harje Ronngard is the editor of Money Morning. Having an academic background in finance and investments, Harje knows how much investment can be simple and difficult. He has worked with a range of badet clbades, from futures to stocks. But he found his place in the evaluation of actions.