Published on ShanghaiDaily.com (http://www.shanghaidaily.com/)
http://www.shanghaidaily.com/article/?id=340533&type=Business
When global bourses fall, IPOs shine from emerging new markets
Created: 2007-12-5 0:30:33
Author:Eric Martin and Nick Baker
AMID the biggest drop in global equities in five years, investors are profiting from initial public offerings from Brazil to India. Those opportunities will keep appearing in the months ahead.
Bovespa Holding SA, owner of Brazil's biggest stock exchange, has risen 43 percent since trading started on October 26, versus a 1.4-percent gain in the nation's benchmark index. India's Mundra Port & Special Economic Zone Ltd has surged 121 percent since its IPO last week; the Sensitive Index rose 1.9 percent. Athletic clothing company China Dongxiang (Group) Co advanced 26 percent since its October 9 debut, while the Hang Seng Index in Hong Kong, where the stock trades, is up 1.5 percent.
More than half the record US$255 billion raised this year through IPOs globally came from emerging markets, where economic growth is more than triple the rate of developed nations. Consumer, industrial and financial companies that went public since September 30 posted an average 11.5 percent gain compared with the MSCI World Index's 1.4-percent slump through last week, data compiled by Bloomberg News shows.
IPOs planned by XTEP (China) Co, a sneaker maker, and Bolsa Mexicana de Valores SA, owner of Mexico's bourse, may attract similar interest.
"People are uncertain about the growth outlook in developed markets, but they can certainly see plenty of growth potential in emerging markets," said Alex Tedder, who bought Bovespa during the IPO and helps manage US$7 billion in global stocks at American Century Investments in New York. "These things are in great demand."
Global declines
The end of the buyout boom and the first decline in the United States profits in five years sent the Standard & Poor's 500 Index down 10 percent for the first time since 2003 last month and erased more than US$4 trillion from equity markets globally.
The S&P 500 fell 0.6 percent to 1,472.42 on Monday, while the MSCI World lost 0.4 percent.
Investors snapped up new shares of Sao Paulo-based Bolsa de Mercadorias & Futuros-BM&F SA, Latin America's biggest derivatives market, in its IPO last week, offering to buy 14 times more stock than the company sold, according to a person familiar with the sale. The stock jumped 20 percent on its first day of trading.
China Railway
China Railway Group Ltd, the world's third-biggest construction company, surged 69 percent in its Shanghai trading debut on Monday on optimism that the nation's growing transport demand will spur earnings. The company raised 22.4 billion yuan (US$3.03 billion) in the Shanghai offering and another HK$19.2 billion in a Hong Kong IPO, people with direct knowledge of the sales said last month.
China, India, Brazil and other emerging-market nations will expand 7.4 percent next year, compared with a rate of 2.2 percent in industrialized regions including the US, Japan and Europe, according to International Monetary Fund projections.
In the US, where subprime mortgage losses have caused the worst housing recession in 16 years, the economy may expand 1.9 percent in 2008, according to the IMF.
"The emerging markets are a few steps removed," said Henrik Strabo, chief investment officer at Clay Finlay Inc in New York. "Even if things get a little rusty here, the emerging markets will still be OK."
Financial, consumer and industrial companies sold about US$48 billion in shares through IPOs this quarter, or 72 percent of all offerings globally. A total of 131 companies in developing nations have raised US$35.4 billion through IPOs in the same period, versus US$32.7 billion raised by 117 companies in developed countries. Emerging-market IPOs also outpaced those from developed nations in the first nine months of the year, with US$98.4 billion raised compared with US$89.2 billion.
Investors bought US$3.7 billion of Sao Paulo-based Bovespa's shares on expectations Latin America's fastest-growing bourse will keep expanding after trading jumped sixfold since 2000. BM&F tapped into that demand when it raised US$3.4 billion last week.
The performance of exchanges has "nothing whatsoever to do with the level or direction of stock prices," said Lawrence Goldstein, general partner at Santa Monica Partners LP in Larchmont, New York, who manages about US$200 million and holds shares of NYSE Euronext, owner of the New York Stock Exchange. "As long as stocks or derivatives trade, you're in heaven."
Bolsa Mexicana, Mexico's biggest stock exchange, will pique investor interest when it sells shares in early 2008 because bourses tend to be profitable, said Gerardo Copca, equity analyst at financial consulting firm Metanalisis in Mexico City.
XTEP (China) hired New York-based JPMorgan Chase & Co and Zurich-based UBS AG in August to help arrange a US$300-million IPO, making it one of about 100 companies located in Brazil, Russia, India and China that have pending offerings, figures compiled by Bloomberg show.
China Growth
China Dongxiang, located in Beijing, rose since its debut on speculation increased employment will boost the buying power of the nation's consumers. China's retail sales in October rose at the fastest pace in eight years as consumers in the world's fastest-growing major economy got richer and inflation accelerated, according to government data.
Expectations for gains in the newest emerging-market stocks may be too sanguine. BM&F sold shares for 36 times estimated 2009 earnings, while Bovespa's price-to-earnings ratio is 30, according to London-based Victoire Finance Capital. That compares with the S&P 500's P/E of 18.
Pretty Expensive
"They look pretty expensive to me," said David Semple, whose US$185-million Van Eck Emerging Markets Fund outperformed 93 percent of its peers last year. "There's unprecedented levels of activity in emerging markets. They're very much at risk if activity tails off."
Billionaire investor Kenneth Fisher of Fisher Investments Inc said the price justifies the risk, and IPOs provide fund managers a way to profit when earnings growth slows.
"What people want right now are good things, not bad things," said Fisher.
Bovespa Holding SA, owner of Brazil's biggest stock exchange, has risen 43 percent since trading started on October 26, versus a 1.4-percent gain in the nation's benchmark index. India's Mundra Port & Special Economic Zone Ltd has surged 121 percent since its IPO last week; the Sensitive Index rose 1.9 percent. Athletic clothing company China Dongxiang (Group) Co advanced 26 percent since its October 9 debut, while the Hang Seng Index in Hong Kong, where the stock trades, is up 1.5 percent.
More than half the record US$255 billion raised this year through IPOs globally came from emerging markets, where economic growth is more than triple the rate of developed nations. Consumer, industrial and financial companies that went public since September 30 posted an average 11.5 percent gain compared with the MSCI World Index's 1.4-percent slump through last week, data compiled by Bloomberg News shows.
IPOs planned by XTEP (China) Co, a sneaker maker, and Bolsa Mexicana de Valores SA, owner of Mexico's bourse, may attract similar interest.
"People are uncertain about the growth outlook in developed markets, but they can certainly see plenty of growth potential in emerging markets," said Alex Tedder, who bought Bovespa during the IPO and helps manage US$7 billion in global stocks at American Century Investments in New York. "These things are in great demand."
Global declines
The end of the buyout boom and the first decline in the United States profits in five years sent the Standard & Poor's 500 Index down 10 percent for the first time since 2003 last month and erased more than US$4 trillion from equity markets globally.
The S&P 500 fell 0.6 percent to 1,472.42 on Monday, while the MSCI World lost 0.4 percent.
Investors snapped up new shares of Sao Paulo-based Bolsa de Mercadorias & Futuros-BM&F SA, Latin America's biggest derivatives market, in its IPO last week, offering to buy 14 times more stock than the company sold, according to a person familiar with the sale. The stock jumped 20 percent on its first day of trading.
China Railway
China Railway Group Ltd, the world's third-biggest construction company, surged 69 percent in its Shanghai trading debut on Monday on optimism that the nation's growing transport demand will spur earnings. The company raised 22.4 billion yuan (US$3.03 billion) in the Shanghai offering and another HK$19.2 billion in a Hong Kong IPO, people with direct knowledge of the sales said last month.
China, India, Brazil and other emerging-market nations will expand 7.4 percent next year, compared with a rate of 2.2 percent in industrialized regions including the US, Japan and Europe, according to International Monetary Fund projections.
In the US, where subprime mortgage losses have caused the worst housing recession in 16 years, the economy may expand 1.9 percent in 2008, according to the IMF.
"The emerging markets are a few steps removed," said Henrik Strabo, chief investment officer at Clay Finlay Inc in New York. "Even if things get a little rusty here, the emerging markets will still be OK."
Financial, consumer and industrial companies sold about US$48 billion in shares through IPOs this quarter, or 72 percent of all offerings globally. A total of 131 companies in developing nations have raised US$35.4 billion through IPOs in the same period, versus US$32.7 billion raised by 117 companies in developed countries. Emerging-market IPOs also outpaced those from developed nations in the first nine months of the year, with US$98.4 billion raised compared with US$89.2 billion.
Investors bought US$3.7 billion of Sao Paulo-based Bovespa's shares on expectations Latin America's fastest-growing bourse will keep expanding after trading jumped sixfold since 2000. BM&F tapped into that demand when it raised US$3.4 billion last week.
The performance of exchanges has "nothing whatsoever to do with the level or direction of stock prices," said Lawrence Goldstein, general partner at Santa Monica Partners LP in Larchmont, New York, who manages about US$200 million and holds shares of NYSE Euronext, owner of the New York Stock Exchange. "As long as stocks or derivatives trade, you're in heaven."
Bolsa Mexicana, Mexico's biggest stock exchange, will pique investor interest when it sells shares in early 2008 because bourses tend to be profitable, said Gerardo Copca, equity analyst at financial consulting firm Metanalisis in Mexico City.
XTEP (China) hired New York-based JPMorgan Chase & Co and Zurich-based UBS AG in August to help arrange a US$300-million IPO, making it one of about 100 companies located in Brazil, Russia, India and China that have pending offerings, figures compiled by Bloomberg show.
China Growth
China Dongxiang, located in Beijing, rose since its debut on speculation increased employment will boost the buying power of the nation's consumers. China's retail sales in October rose at the fastest pace in eight years as consumers in the world's fastest-growing major economy got richer and inflation accelerated, according to government data.
Expectations for gains in the newest emerging-market stocks may be too sanguine. BM&F sold shares for 36 times estimated 2009 earnings, while Bovespa's price-to-earnings ratio is 30, according to London-based Victoire Finance Capital. That compares with the S&P 500's P/E of 18.
Pretty Expensive
"They look pretty expensive to me," said David Semple, whose US$185-million Van Eck Emerging Markets Fund outperformed 93 percent of its peers last year. "There's unprecedented levels of activity in emerging markets. They're very much at risk if activity tails off."
Billionaire investor Kenneth Fisher of Fisher Investments Inc said the price justifies the risk, and IPOs provide fund managers a way to profit when earnings growth slows.
"What people want right now are good things, not bad things," said Fisher.
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