CHINA: RED-HOT 'RED CHIPS' SPARK RETURN OF IPO MANIA

Global Finance, Jan 2004 by Platt, Gordon

Fast-rising IPOs are making a comeback, thanks to investor enthusiasm for new issues from China. Investors lined up in Hong Kong in December to buy a piece of China Life Insurance's $3 billion share offering. Banks opened two hours early to handle the last-minute rush of orders, as the 5% share allotted to individual investors was hundreds of times oversubscribed. The offering from China's largest life insurance company was the biggest IPO of 2003.

Ctrip.com International, a Shanghai-based online hotel and airline booking company, saw its share price double during its first day of trading on the Nasdaq market in December. It eased back later to close with a gain of 89%, the biggest first-day gain in New York in the past three years.

Chinese truck and sport utility vehicle manufacturer Great Wall Automobile also came to market in December with an issue that was heavily oversubscribed.

Meanwhile, Chinese online game developer Shanda Networking has filed to offer shares on Nasdaq. The company hopes to raise up to $500 million.

Investors are rushing to buy shares of Chinese companies without heeding the warnings of US Federal Reserve chairman Alan Greenspan and others that the Chinese economy is in danger of overheating. While the exuberance that investors are demonstrating for Chinese shares may not be irrational in light of the country's fast-growing economy, the risks are undeniable.The H-share index of China-based companies listed in Hong Kong more than doubled in 2003, reaching a six-year high.

Some brokers, when they are not too busy taking orders for Chinese issues, are cautioning clients that when the inevitable correction comes, it could be severe. Meanwhile, what is beginning to look like a China bubble continues to grow. -GP