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china stock bubbly
Companies producing goods for China’s construction and real estate development sectors could well be the gainers from these newly cashed-up listed companies – who will seek to reinvest significant parts of their IPO funds into mid-term business growth.
While a large proportion of stock buys in both IPOs can be attributed to investors driven by short-term profit gain, it is clear that serious investors believe that Chinese construction/infrastructure-based companies offer long-term value, particularly in the current economic climate. This is a turnaround from the IPOs of two/three years ago, where Chinese banking and financial companies were the boom stock investment vehicles.
Analyst talk in China currently surrounds the flood of new bank loans in recent months that have released a surfeit of liquidity into the economy. This cash is, it seems apparent, being used for speculative investments in two key areas: real estate and stocks – and the result could be a rise in inflation later in the year.
At first glance, these two emerging investment bubbles seem unrelated, but closer analysis reveals an intrinsic link – and that link is China’s large-scale state-funded stimulus spending in new infrastructure and construction projects.
Take, for example, this week’s two mega-IPOs. China State Construction launched the world’s largest IPO for 16 months, while cement maker BBMG saw its shares rise a whopping 65 per cent on its debut day of trading. Neither result occurred in isolation.
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