China IPO's at Home and Abroad
Chinese companies listed in North America were sent to the penalty box in 2011. Not surprising, when accounting irregularities and outright scams dominated the headlines. When it became difficult to tell the offenders from the fellows wearing the same uniform, the entire team got punished, guilty by association. Yet any hockey coach will tell you that you need your best players on the ice. And when investors are looking for return, they cannot ignore 7% growth and a booming consumer market.
So, the Chinese stocks are rebounding - I have written about Shanda Games (GAME), ChinaCache International (CCIH) and Perfect World (PWRD), all nicely higher since April, and SilverCorp (SVM) which has rebounded. CIBT Education Group (MBA) has also had a nice gain. GLG Life Tech (GLG) (GLGLF) has resumed trading and with its cooperation agreement with COFCO looks extraordinarily well positioned with its stevia products.
Now we are seeing the slow return of Chinese companies to the IPO market. Partly this is due to the success of YY Inc (YY) which has done extraordinarly well. 58.com is poised to do a $100 million IPO this fall.
Are investors foolish to trust again in Chinaco, and more particularly Chinese IPOs? I don't think so. Buying any IPO is an act of faith. Remember Facebook (FB)? But the quality of the Chinese listings reflects improved vigilence in the IPO market in China. After putting all IPOs on hold in the end of 2012, the China Securities Regulatory Commission (CSRC) has put into place additional rules that govern IPOs. And most importantly (this being China, after all) they are enforcing the rules with vigour. Properly operating equity markets are essential to the development of China's macroeconomy. While the rules do not directly apply to overseas IPOs, the CSRC approves companies for overseas IPOs, and the same standards apply. The Chinese government was embarrased by the scandals involving their companies listed abroad, and for a company executive it is certainly not a wise business practice to embarrass the government.
Caution will still be necessary on both sides of the Pacific, due diligence is key. But the misconduct is over, and we can get back to 5 a side activity.
posted...September 10, 2013