Smoking-Hot China IPOs

What do you end up with when you combine "China" and the "internet?" You get a smoking-hot IPO. For example, Chinese search engine Baidu.com (BIDU), the Google of China, is up by 160% so far this year.

A total of 35 Chinese companies have gone public in the United States this year, raising $2.2 billion and creating a windfall of gigantic profits for many investors.

A couple of real humdingers went public last week and skyrocketed in value. I'm talking about Youku.com (YOKU) and E-Commerce China Dangdang (DANG), both of which had spectacular debuts.

  • Youku.com soared by 160% on its first day of trading and up another 16% on day two, which boosted its market capitalization to $3.3 billion. That first day moon shot was the best first day performance of any IPO in five years.
  • China Dangdang jumped by 87% on its first day. Dangdang was heavily purchased by 500 institutional investors, a huge number for a $272 million IPO that would normally attract 50 or 100 buyers. Dangdang's stock was bought by funds from the Middle East, Asia and Europe as well as the United States.

Don't feel bad if you've never heard of Youku.com and E-Commerce China Dangdang. Very few U.S. investors have.

Youku is an online video company that is essentially the YouTube of China. Youku has yet to make a profit, but its revenues — up by 135% in the first nine months of 2010 — are growing like mad, and it is WILDY popular with Chinese youths.

Youku CEO Interview
If you want to learn more about Youku.com, click here to watch this interview with CEO Victor Koo.

E-commerce remains a fledgling industry in China because few Chinese own credit cards, but Dangdang is expected to become the Amazon.com of China and become one of the country's largest online retailers.

But Wait, There's More

Those weren't the only Chinese IPOs last week. Also going public were Sky-Mobi (MOBI), China's largest mobile application store; Lentuo (LAS), the largest privately owned car retailer in Beijing; Bona Film Group (BONA), the largest non-government owned movie producer in China; and China Shengda (CPGI), a China-based manufacturer of paper packaging.

Get this: According to Ernst & Young, a whopping 46% of the world's IPO sales have come from the greater China region — mainland China, Hong Kong, and Taiwan — in 2010.

This factoid may surprise you: There are more than 300 Chinese stocks traded on a U.S. stock exchange. Yup, you can get about as much Chinese exposure as you want without leaving the shores or comfort of your current U.S. broker with these American Depositary Receipts (ADRs).

For example, internet portal Sina.com (SINA) is the largest internet advertiser in China and is trading for a very reasonable 11 times earnings. A lot of investors consider that a bargain since it owns/operates Weibo, the Twitter of China, and has $1 BILLION of cash sitting in the bank.

Two other Chinese internet portals, Sohu.com (SOHU) and NetEase.com (NTES) are trading for 23 and 16 times earnings, respectively.

Tony Sagami

A great starting point for following Chinese ADRs is a new index, the BNY Mellon China Xia Yi Dai Index, is a new index that you may want to follow. This is an index of Chinese stocks listed on a U.S. exchange with a market capitalization of at least $100 million. This is essentially an index of the bluest blue chip Chinese stocks available to U.S. investors on the NYSE and Nasdaq.

By the way, three more Chinese companies are prepping to go public in the United States in the near future: Redbaby, Oak Pacific Interactive, and Uni-Power Guaranty.

Oak Pacific Interactive, in particular, should be a big winner. The company operates Renren, the most popular social networking site in China and is accurately referred to as the "Facebook of China."

Not only is the social networking market bigger in China, Renren has the advantage that the Chinese government has forbidden Facebook to operate in China effectively giving Renren a government-sponsored monopoly.

Oak Pacific Interactive also owns Nuomi, a Chinese Groupon clone.

Oak Pacific Interactive has hired Credit Suisse to underwrite its IPO, and is expected to go public in the U.S. in early 2011.

If you want to stay abreast of these hot Asian IPOs. I suggest that you follow my blog at http://blog.uncommonwisdomdaily.com/ and my Twitter page at http://twitter.com/#!/tony_sagami where I post notices about new Asian IPOs as well as news items that can help you identify new investment ideas.

My blog and Twitter readers were notified about Dangdang and Youku.com and may be smoking big victory cigars paid with the fast profits they made on those two stocks.

IPOs, whether Chinese or American, can be volatile and are therefore only appropriate for investors willing to accept a higher amount of risk. They can, however, be extremely lucrative and some of the fastest profits you will ever make.

Chinese IPOs are the hottest of them all and are at least worth your attention if not your money.

Best wishes,

Tony


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Posted 12-16-2010 12:17 PM by Tony Sagami
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