Facts of China Life
By Gary LaMoshi
HONG KONG - To be rich is glorious, Deng Xiaoping exhorted his comrades, and it's so much more glorious when everybody knows about it. Last week, China strutted its nouveau riche stuff across the world stage. Smart investors stayed out of the way.
On Wednesday, insurance giant China Life completed the largest initial public offering in the world this year, raising a whopping US$3.46 billion, after raising allotments and pricing shares at the high end of estimates. In their first trading session on the New York Stock Exchange, China Life shares soared 27 percent. In the Hong Kong debut the following day, shares rose 26 percent.
That strong performance was no surprise. Three of Hong Kong's leading tycoons - including Li Ka-shing, the local counterpart of Warren Buffett as an investing trend setter - pledged to take a combined $500 million in China Life shares, prompting Hong Kong investors to dive in head first. Banks ran out of application forms for the offering. One brokerage reportedly suspended operations temporarily because of the strain on its capital due to overhanging China Life orders.
Flipper, faster than lightning
With Hong Kong banks paying 0.01 percent (yes, that's one-one hundredth of 1 percent) on deposits and US interest rates only marginally higher, no wonder investors are looking for something better. Those who got their China Life shares at the offer price and got out near the high on the first day of trading made nice money, an annual return of more than 9,000 percent. That sounds a lot sexier than the actual net of about $1,000 after fees and commissions, still not bad for a half-day's work.
For those who didn't flip, China Life shares finished the week slightly below their first day close. Given the track record for China issues, China Life has likely begun its long slide into the investment scrap heap. Sure, there's a growing market for insurance as the Chinese masses get wealthier, but (ahem, communist) government regulation suggests that China Life won't become the capitalist powerhouse that its Western counterparts were in their heydays.
There have been some good investment opportunities in China to be sure. For example, mainland Internet stocks (see Halloween and China's IT stocks, November 11) have been among the best performers in New York over the past two years. However, the overwhelming majority of Chinese stock offerings have not produced winning returns.
The only sure winners in these offerings are the companies that scoop up the public's money. For everyone else, it's a gamble, and the casino is rigged (see China's stock market binge, August 30). Perhaps no statistic is more telling than this one: mainlanders, living in the midst of an economic miracle and with few options for investing spare renminbi, choose to put their money in the bank instead of China's stock markets.
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