Ordinary Gweilo

The China Life IPO has been quite entertaining. First we had the spectacle of grannies and taxi drivers queuing up to invest their life savings (or HK$1m borrowed from their broker), obviously unaware of the fact that they were very unlikely to get more than HK$10,000 worth of shares allocated to them. Then we had the fiasco of the allocations being listed incorrectly in the official announcement, forcing the company to issue a correction (more advertising revenue for the SCMP) and making some people look a bit foolish.

However, there is a more serious side to this, as Jake van der Kamp pointed out on Wednesday. People in Hong Kong have lots of money stashed away and don’t know what to do with it. When the property market finally stabilises, I believe that a lot of that cash will head in that direction and we will see a definite bounce in prices. In the meantime, one obvious destination for this cash is the IPOs of large China companies. Which would be fine if these companies had good long-term prospects, but in fact they are usually large (previously state-run) enterprises who are likely to face stiff competition from smaller, more nimble, businesses with lower cost bases. It’s perhaps understandable that Americans should fall for this trick, but Hong Kong people really ought to know better!