Chinese bank IPO a very bad investment for Kuwait, Qatar
Posted on 19 June 2010 with 2 comments from readers
China’s stock market has dropped by a fifth this year and is on a falling trend as investors see a slowdown in rampant economic growth coming as the historic stimulus package winds down and bank lending becomes tighter.
Why on earth then would any investor consider buying shares in the initial public offering of the Agricultural Bank of China? The bank has already had to scale back the $30 billion it hoped to raise in its dual listing in Hong Kong and Shanghai.
Catching a falling knife
Who would put money into a falling stock market that could take years to recover? Thinking long-term is one thing, acting foolishly in the short-term is generally a long-term error.
Step forward the Qatar Investment Authority and Kuwait Investment Authority that are each being offered a $1 billion stake. This will help get the rest of this IPO away before the market goes down even further.
Chinese banks are currently among the most highly valued in the world. Is that not a telling indicator to any investor? AgBank wants to list it shares in Hong Kong on July 15 and Hong Kong the following day.
This looks like the BP privatization disaster before the 1987 stock market crash. There is always one too big to fail stock issue before a serious reality check.
It gets worse. The price for taking a pre-IPO stake is usually a lock-up period of six to 12 months, so there will be no opportunity to sell these shares if the market goes wrong.
Not a good buy
These institutions are doubtless weighing the positives against these negatives. China seems the economic powerhouse of the future and the opportunity to buy stakes in such a key financial institution do not come along every day.
But China also has a long history of fleecing foreign investors. Investing in over-valued Chinese banking stocks with a double dip global recession on the immediate horizon is therefore not sensible.
The better time to buy would be to relieve some other IPO buyers of their devalued stakes when the lock-up period is over. You take the risk that the Chinese miracle continues and that the opportunity is lost. But then the substantial market risk will also have been avoided.
2 Comments posted by readers:
I think they got them at a lower price than the official IPO price that people will be paying. I think that IPO will do well and in the long run holding shares in this bank will be good. Stock prices are low in China now and sooner or later they will pick back up again.
China has the most millionaires in the world now and they started to unpeg their currency. This is great news. With more millionaires out there banks will do well.