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.
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.
For manufacturers, the drip-down conclusion is clear – 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.
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on Friday, July 31st, 2009 at 2:39 am and is filed under News commentary.
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China’s Stock Bubble – Where’s The Value For Chinese Manufacturers
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.
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.
For manufacturers, the drip-down conclusion is clear – 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.
This entry was posted on Friday, July 31st, 2009 at 2:39 am and is filed under News commentary. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.