All systems go for China bank IPO

The debut of Agricultural Bank of China will tell investors a lot about the market.

By Jim J. Jubak Jun 3, 2010 4:35PM

Kim PetersonHave I got a China indicator for you! 


Like a lot of investors, I think the selloff in Chinese stocks marks a buying opportunity -- sometime in 2010.  


The Shanghai Composite Index is down 22% in 2010, and the market is deep into bear market territory. But that doesn't mean it can't get cheaper still. So, when should you buy? 


I've got a suggestion for one indicator to watch, the IPO (initial public offering) for Agricultural Bank of China. Worries about this issue, scheduled to raise $30 billion in the Hong Kong and Shanghai markets in July in what would be the largest IPO ever, are dogging China's banking stocks and Chinese stocks in general.  


The fear is that the offering will have to be delayed because financial markets won't be able to come up with the capital for this IPO and to meet the demands of other Chinese banks for new capital.  


Estimates are that China's already publicly-traded banks will have to raise 200 billion to 300 billion yuan (or $24 billion to $44 billion) in 2010. That, as I noted in my post “Move over Charles Ponzi and Bernie Madoff -China is running history's largest financial scam,” equals nearly half of all the capital raised in the Shanghai and Shenzhen stock markets in 2009. 


Add the $30 billion for the Agricultural Bank of China and you can see why markets might be nervous. 


But that also sets up a great indicator for investors looking to time an entry into China's stock markets. If regulators in Beijing can orchestrate a successful IPO, I think that will signal that it's time to put some money to risk in the world's fastest growing economy. 


So, by the end of July, we'll know. Not everything -- but enough, in my opinion. 


I think officials in Beijing will pull it off. They're certainly putting a huge amount of their considerable power to work making sure that the offering goes.  


One of China's already publicly-traded banks, Bank of China, launched a $6-billion issue of convertible bonds yesterday, June 2, but China Construction Bank, China's second largest bank by market capitalization, has indicated that it may delay plans to raise $11 billion until 2011. That would remove some competition for capital ahead of the Agricultural Bank's IPO. 


In the last few weeks, regulators have approved a slew of new mutual funds -- just in time for those funds to be big subscribers to the IPO. 


State-controlled companies such as Baosteel and China Life Insurance (LFC) have joined with the Ministry of Finance, China's sovereign wealth fund, and the national pension fund in saying they'll buy into the IPO. 


China's regulators are also putting pressure on foreign banks and investors to support the IPO. The sovereign wealth funds of Kuwait and the United Arab Emirates have expressed interest in investing up to $1 billion each. 


But perhaps the biggest reason to believe that the Agricultural Bank of China IPO will go on schedule is the government's record in making sure that investors in Chinese IPOs make money -- even in a bear market.  


Even as Shanghai has suffered through a bear market, so far in 2010 Chinese IPOs have gained an average of 32%. 


Don't you just love Chinese capitalism? 


At the time of this writing, Jim Jubak didn't own shares of any company mentioned in this post.  

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

126
126 rated 1
286
286 rated 2
474
474 rated 3
680
680 rated 4
626
626 rated 5
609
609 rated 6
620
620 rated 7
462
462 rated 8
304
304 rated 9
132
132 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
BIDUBAIDU Inc10
BXTHE BLACKSTONE GROUP L.P10
CELGCELGENE CORP10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.