Markets

China IPOs post world's biggest gains of 2010

(Agencies)
Updated: 2010-05-28 13:20

China has the world's worst performing equity market this year and the best returns on initial public offerings.

While the Shanghai Composite Index has slid 19 percent for the steepest drop among the 10 largest stock markets, IPOs are beating the country's benchmark equity indexes by 33 percentage points on average in their first month of trading, data compiled by Bloomberg show.

Related readings:  ABC heads for world's largest IPO  ABC clears hearing in run-up to IPO  China pushes IPOs for state-run media  Chinese media outlets look set to make IPOs

Chinese individuals have helped snap up $25 billion in IPOs this year, three times more than were sold in the US, as inflation erodes savings and the government clamps down on property speculation.

"Most of the China IPOs are overvalued," said Larry Wan, Shanghai-based deputy chief investment officer at KBC-Goldstate, which oversees about $583 million. "It's difficult to believe they are going to be able to deliver the sort of exponential growth that the valuations imply."

The fastest expansion among the 20 biggest economies has helped spur the surge in China's IPO market. The country's gross domestic product grew 11.9 percent in the first quarter, the most in almost three years and about four times the US GDP.

The amount raised from Chinese IPOs may double after the sale by Beijing-based Agricultural Bank of China Ltd. The bank will seek at least $30 billion in Shanghai and Hong Kong, according to the Beijing Times. That would be the world's biggest initial offering, exceeding the $22 billion deal by Industrial & Commercial Bank of China Ltd of Beijing in 2006.

Chinese IPOs have advanced 32 percent on average in their first month of trading, while the Shanghai Composite Index and the Shenzhen composite declined, Bloomberg data show.

The rally by newly listed companies has been primarily fueled by individual investors, even as concern that Europe's debt crisis will hamper the global economic rebound spurred a selloff in equities around the world, according to Andy Xie, an independent economist in Shanghai.

"Chinese investors have this traditional belief that you can't lose money buying new stocks," said Xie, formerly Morgan Stanley's chief economist for the Asia-Pacific region.

Gains by Chinese IPOs have pushed valuations to an average 46 times estimated profits, Bloomberg data show.That's almost three times as much as companies traded in Shanghai, valued at 16 times earnings, and about double the ratio for Shenzhen-listed stocks.