December 12, 2003

Bubbles

The impending listing of China Life on the HK and NY stock exchanges shows how some stock bubbles are alive and well in this day and age. Hong Kong has the gambling bug. And everyone worships the almighty dollar. And the surest way to make easy money is getting in on a hot IPO. From the SCMP (all numbers are in HK$, the exchange rate is HK$7.8=US$1):

Insurer China Life's share offer was about 150 times oversubscribed by Hong Kong's investing public - who put up nearly $175 billion (US$22.4 billion) for a slice of the world's biggest IPO this year - sources said last night.
That's not a typo. That is how much money the people of HK have tied up for a two week period just to get a piece of this float. The interest on this money is worth US$8.6 million for those 2 weeks. That money stays with the organisers. It's a windfall gain.
...underwriters initially estimated the offer was 100 times oversubscribed but late last night raised their estimate to 150 times. The number of subscribers will not be known for several days.

The result could rival this year's most oversubscribed initial public offering, Great Wall Automobile Holdings, a mainland carmaker, which locked up $110 billion of would-be investors' money. The portion of Great Wall's shares on offer to retail investors was 600 times oversubscribed.

Herd mentality, anyone? And of course Hong Kong's great and good don't miss out.
China Life already counts some of Hong Kong's biggest tycoons as its investors. They have taken up 18.1 per cent of the shares on offer.
Here's where it gets scary.
Worried he could miss out on the world's biggest stock offering this year, shipping clerk Lawrence Wong, who earns $7,500 a month, borrowed more than $1 million from his broker to subscribe for the China Life shares, according to Reuters.

"If I didn't borrow the money, I wouldn't be able to secure enough shares," Mr Wong said. He said that in the unlikely event that he got all of the 300,000 shares he applied for, he needed them to rise 10 per cent on their debut next week to cover interest payments and make a small profit.

"I think the risk is low for these IPOs [initial public offerings]. I'm going for the first-day gains," Mr Wong said.

This is not unique. In fact each day there have been stories of people borrowing way too much money to buy these shares. Let's leave aside the lack of ethics a broker demonstrates by lending someone 133 times their monthly salary backed only by shares. This is the clearest sign a bubble exists relating to all things China. Nothing is certain, especially in stock markets. These people are taking extra-ordinary risks to make a quick buck. It borders on predatory but human greed is impossible to stop. When it one day goes wrong the Government will be blamed and people will say something must be done.

But you cannot legislate against stupidity.

Posted by Simon at December 12, 2003 09:46 AM | TrackBack
Comments

This is why free-fall Bungee Jump [without anything tied or attached to the body] is a famous sport for those who go broke [and nuts].

Cheers!

Posted by: Ron at December 12, 2003 01:40 PM
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