Insights from Hong Kong

Posts Tagged ‘IPO’

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Don’t Panic & Carry a Towel: Stock Markets Down, IPOs Shelved, Economies Uncertain

In Economics on 31 May 2012 at 10:04 AM

Markets hate uncertainty. And from Europe to China, there’s plenty on offer.

  • Just six months ago analysts were loath to mention the possibility of any member exiting the European Union. Now newspapers detail potential exit plans for Greece, and how politicians and central bankers would manage a return to Drachma over a three-day weekend. Shares in banknote printer De La Rue have appreciated as it is expected they would receive the printing contract for drachma. 
     
  • Spain is the latest country in the headlights. Its levels of bad debt and unemployment are equivalent in percentage terms to Greece. The problem is the country’s economy is much, much larger. If Greece was a stone thrown in the pond – and the uncertainty we feel are the ripples – then Spain is a boulder. 
     
  • Even two weeks ago Facebook listed at valuations above preliminary estimates. Today The Wall Street Journal discloses how options trading is taking off predicting a steep decline in the stock’s value. 
     
  • Mid-way through a global roadshow, high-end jeweler Graff Diamonds withdrew its IPO (Initial Public Offering). Graff failed to attract retail investors. The Hong Kong Standard said that, as of yesterday, less than 1% of the shares available to retail investors had been taken. 
     
  • China’s government hasn’t ruled out stimulus measures to keep the economy from faltering. They are loosening fiscal and monetary policy settings but steering clear of making any general pronouncements on stimulus measures. According to The Melbourne Age the concern is the announcement of such actions will further undermine the global economy – and risk China’s overall economy. Pundits say China is overly reliant on government spending. 
     
  • The Australian dollar hit a six month low. Many invest in the currency as a proxy for natural resources. From iron ore to coal to copper, Australia is one of the world’s largest exporters. Instead of buying shares in BHP Billiton or commodity contracts in specific minerals, the Australian dollar tracks the overall sector. In a strong economy that dollar appreciates and it falls amid uncertainty. 
It is wholly appropriate that all these global gyrations occur in the immediate aftermath of Towel Day. 

“Don’t panic and carry a towel.” Douglas Adams

These “Don’t Panic” and “Carry a Towel” recommendations are provided early in The Hitchhiker’s Guide to the Galaxy – a best-selling and ingenious fiction series by Douglas Adams. Every year fans commemorate these words of wisdom and carry a towel on May 25th – last Friday.

Arthur C. Clarke, the author of 2001: A Space Odyssey, said Douglas Adams’ use of “Don’t panic” was perhaps the best advice that could be given to humanity.

Should you be needing a little comfort, I recommend you dial back your computer’s calendar a week and come into work tomorrow with a towel. It should obviate panic. Otherwise you have 359 days to wait for Towel Day 2013.

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In Beijing, Facebook on the Radio – Not My Phone

In China, Social Media on 18 May 2012 at 10:31 AM

I am in Beijing on business and find it difficult to access my social media favourites. Twitter is erratic. Facebook is not available. Some say it’s the wireless access at the Fairmont Hotel. Others say it’s the Great Firewall of China.

Yet here I am in traffic on my way to Kreab Gavin Anderson’s offices in China World Towers. The top of the hour news is that Facebook has priced its IPO (initial public offering) shares at US$38 each. Commentators are saying it’s over-valued. There are likely to be investors from China.

Yet here on the street, few can access Facebook. Those that do use VPN (Virtual Private Networks) available privately for a small fee or in many offices.

China is renowned for blocking access for most citizens to global social media sites. In their place local equivalents have gained traction. There’s no Twitter but Weibo reigns supreme. You can’t get YouTube but you can get Youku. Across the spectrum of social media sites there’s a Chinese equivalent.

For Facebook investors, the premium paid today is done in anticipation of an increase tomorrow. Right now the revenue forecast by Facebook for Greater China is US$0.00. That’s the total estiamte of potential earnings for a nation of 1.2 billion people – most of whome are electronically connected and mad for social media.

For some the investment in Facebook today is a worthwhile bet on the day China opens to outside sites. The citizenry is wired. They already have strong social media habits. There’s an immense amount of time spent daily on similar sites. And of course the IPO has raised awareness. It was the lead story on the local radio station in the taxi today.

Facebook isn’t available “on the streets” in China today. The day it is, expect a tsunami of take-up. That may make the US$38 per share seem relatively affordable.

Until then, I’ll wait to udpate my status until I return to Hong Kong.

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China IPOs & Lending: Capital Makes the World Go Round

In China, Hong Kong on 13 March 2012 at 2:07 PM

The great capital drought is easing – in China at least. Today two major IPOs were announced (Kinetic Mines and People’s Insurance). (IPO stands for Initial Public Offering, meaning the first time a company offers shares to the public.) On the same day China Construction Bank said it will increase lending to small and medium enterprises. Finally the Bank of China reduced the amount of reserves bank must hold, freeing up additional capital for lending.

The taps are open again.

It seems lending by banks is counter-cyclical. When the economy was strong and businesses were growing, it was easy to get bank loans. Yet at the same time money was lent to projects that didn’t warrant the investment. This is the main issue facing Greece today. Low rate loans backed by a strong Euro made impossible financing projects possible. Eventually the impossibility of the project becomes apparent.

Then when business slows – so does access to capital. Banks refuse loans and shareholders won’t invest in shares. So IPOs dry up. And companies cannot access funds. That makes expansion difficult. It can also lead to cash flow crises and the closure of otherwise healthy businesses.

The free and fair flow of capital is what keeps any economy ticking. The announcement of high dollar IPOs and the opening of bank lending means businesses can expand, hire more people, make more products, buy more machinery – and keep the overall economy growing.

In a time of great uncertainty regarding the general economic climate, these are encouraging early signs.

 

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