An IPO is an Initial Public Offering. This is the initial sale of stock to the public from private investors and holders of the company. There are several reasons why a company would issue stock to the public. Publicly traded stock allows the company to offer shares in mergers and acquisitions, easing the mechanism in purchasing other companies and lowering the cost. Publicly traded stock also allows the company to offer incentives to employees, by giving shares of stock. The greater exposure and publicity also help retain and attract talented employees and management. The value of a company is also higher compared to when it’s private. This is because increased levels of liquidity and transparency are more attractive to investors, who will allocate a higher multiple for the company’s value. The biggest downfall to a company issuing stock to the public is greater scrutiny from investors, as all financial records are made public. This comes in the form of an increase in legal and marketing costs, plus time spent with analysts and other investors explaining the inner workings of the company.

The most sought-after initial public offering (IPO) since the arrival of Google Inc. (NASDAQ/GOOG) in August 2004 is in the works, as social networking giant Facebook is expected to file for its IPO this week. With over 800 million users from around the world, including 80% located outside of the United States, Facebook will make investors who are lucky enough to get the stock at the pre-IPO price (yet to be determined) rich. The fact that over 350 million active users access Facebook via mobile devices is impressive.

One of the most important markets for Facebook will be China and India given the fact that the two countries account for a third of the world’s population.

In China, just take a look at the numbers. Imagine that China, which strived for socialism under Mao Zedong during the Cultural Revolution from 1966 to 1976, has now become the epicenter of the Internet world with demand growing at a staggering pace.

The number of Internet users in China is tops in the world, with a whopping 505 million on the Internet at the end of November 2011, according to the China Internet Network Information Center (CNNIC). The number of broadband users stands at around 15.51 million users, up 18.6% year-over-year. There are also over 340 million smartphone users.

In addition, about 58% of Internet users in China roam the Web via their cell phones, according to the State Council Information Office.

These are massive numbers and point to the staggering growth.

But what is impressive is that the Internet penetration rate is still low at 37.7% versus over 70% in the U.S., so there is still ample room to grow.

Facebook knows the massive potential in China and wants to dominate the social networking space there, but there will continue to be restrictions in the communist country. A few years ago, Facebook met government resistance when trying to expand in this country where the government tries to control the media, which sometimes unfortunately includes freedom of speech. The key to achieve success is developing alliances with Chinese companies and then working hand in hand to develop the market. Facebook enlisted Chinese Internet giant Baidu, Inc. (NASDAQ/BIDU) to expand its reach.

In the mid-cap space, a Chinese social networking play is Beijing-China-based Renren Inc. (NYSE/RENN). Renren operates a real-name social networking Internet platform in China with about 137 million activated users as of September 30, 2011. The platform allows users to connect with each other. Services include social networking, online gaming, social commerce, and business social networking.

It will be exciting to see how Facebook does in China; but one thing’s for sure: I expect social networking could be the next big thing if allowed to flourish.

Another area that I feel has tremendous growth opportunities in China is travel, which I discussed in The Super-hot Chinese Sector.

Oracle Corporation (NASDAQ/ORCL) is a bellwether on the condition of global technology spending, so it’s not a surprise to see some anxiety in technology stocks after the global tech giant reported an earnings shortfall in its fiscal second quarter and warned of some slowing in spending. It was the first earnings miss for Oracle in a decade. While it does not immediately sound the alarm for technology stocks, there is some anxiety that companies are holding back on tech spending. This may indicate a downturn in overall spending, which will drive stalling in the global economies.

The results were not limited to Oracle in the large-cap technology stocks space, but recently we also saw soft results and guidance from other bellwether stocks including Intel Corporation (NASDAQ/INTC), Dell Inc. (NASDAQ/DELL), and Hewlett-Packard Company (NYSE/HPQ). There was a common thread running through the reasons given for the shortfalls: blame the stalling global economies. With the debt issues inEuropeand muted growth there, companies are delaying their spending on technology upgrades. The same goes forChinaand theUnited States.

While I’m positive on technology stocks in the longer term, the near term is another story. The tech-laden NASDAQ is trading below its 50-day and 200-day moving averages and looks to close negative for the year unless we see a strong Santa Claus Rally next week. Traders are clearly apprehensive about technology stocks, as demonstrated by the fact that there has only been one bullish investor sentiment reading since October 31 and a mere six bullish readings since July 26, which is 103 sessions. This shows a lack of confidence.

The cautious climate for technology stocks and the overall market risk is also impacting initial public offerings (IPOs), which would have surged in a strong market. Not so at this time.

Internet gaming developer Zynga Inc. (NASDAQ/ZNGA) debuted in a $1.0-billion offering, or at $10.00 a share, on December 16. Hoping to cash in on the interest in social media plays, Zynga—a developer of the widely popular online games such as CityVille, FarmVille, and Mafia Wars—failed to inspire traders and has in fact fallen below its IPO price on overall disinterest.

Jive Software, Inc. (NASDAQ/JIVE), a developer of social business software, surged 25% on its first day of trading to close at just over $15.00 after trading at $16.50. The stock is holding just above $15.00, but may head lower if tech drifts down.

While I’m cautious in the near term, I continue to feel that technology stocks will be a critical area for growth opportunities going forward. The sector to watch for the best investment opportunity is the area of mobility applications for tablets and smartphones, as users shift away from the more cumbersome PCs and laptops. Apple Inc. (NASDAQ/AAPL) is the “best of breed” as far as technology stocks go in my view. Microsoft Corporation (NASDAQ/MSFT) also is worth a look as it gets set to launch its new smartphones with Nokia Corporation (NYSE/NOK) in its battle against “iPhones” and “Android” phones.

In the meantime, you could protect against possible weakness in technology stocks by buying index put options on the Powershares QQQ (NASDAQ) or by playing a potential aggressive downward slide in technology via the Direxion Technology Bear 3X (TYP).

In addition to liking technology in the long term, I also favor alternative energy plays, which I discussed in The Alternative to Being Held Hostage by Oil-rich Companies.

Global financial markets continue to face the headwinds from the yet to be resolved European Sovereign debt crisis along with domestic problems at home, including weak housing prices, high unemployment, debt/deficit, and economic renewal.

The pipeline of Initial Public Offerings (IPOs) has essentially dried up. Those from China have evaporated in light of the increased scrutiny on Chinese stocks via reverse mergers.

An interesting IPO that just registered is Glori Energy Inc., which has an innovative process that uses biotechnology to release fossil fuels trapped in reservoirs.

Otherwise it has been quiet this year following a strong IPO stream in 2010. This should not be a surprise given the weaker stock market conditions prevalent this year. I expect the flow to rise as the market and economic conditions improve in 2012 and into 2013. The reality is that companies need to raise capital and, without strong demand from investors, many smaller companies will suffer.

In addition to the IPO pipeline, reverse takeovers continue to be a disappointment for investors as we approach the fourth quarter. This other pipeline is drying up, especially from China where there have been investigations and the surfacing of tighter rules for listing and reporting on U.S. exchanges. The near term will be poor for new reverse takeover stocks, but we should see better companies surface once the regulations are cleaned up.

This is a win-win situation.

The weakness of the reverse takeover stocks is evident from the poor performance of the Bloomberg Chinese Reverse Mergers Index (CHINARTO Index), which is a market capitalization weighted index that tracks China-based companies trading on U.S. exchanges following reverse takeovers.

As of October 11, the index is down 60.13% from December 2010, compared to the S&P Index decline of 5.01% during the same period. The results have been horrendous.

The non-weighted China Main Index (TCM) is down 73% from its inception in December 2009. The non-weighted China OTC Index (TCO) is down 96% from its inception in December 2009! These are horrible results, but I feel things will improve down the road.

At present, investors remain bearish towards reverse takeover stocks due to the enormous volatility in the share prices. The last few months have been a harvest season for the short sellers in Chinese reverse takeover stocks.

The majority of reverse takeover stocks have taken a hit following the U.S. Securities and Exchange Commission (SEC) announcement irrespective of the strength and growth prospects of the business, solid financial performance, and clean reputation of the management. At the end of the day, this gives an opportunity to the investors to be selective and invest in such firms, earning higher returns.

The IPO pipeline will get better, but it will take time for the market fundamentals to improve. The next big IPOs will be Facebook and Groupon, which could debut in 2012.

Chinese stocks are again the focus of increased attention and speculative trading. In China, the benchmark Shanghai Composite Index (SCI) was rallying and was down less than four percent this year, which is impressive given that the index had been down over 28% earlier in the year. Unfortunately, fortunes have turned, as there has been selling in Chinese stocks. The SCI is currently down 14.25% on the year.

But don’t tell that to the speculative and bubble-like trading in Chinese Initial Public Offerings (IPOs).

There have been some spectacular debuts that would make even Broadway happy.

On Wednesday, Chinese online video superstar Youku.com Inc. (NASDAQ/YOKU), which was subscribed at $12.80, surged to close at $33.44, up a staggering 161% in a day! YOKU is up another 10% in early morning trading on Thursday. I guess when the company has a 40% penetration rate in an Internet market with over 420 million, rich valuations are demanded.

The other Chinese IPO that also presented a dazzling debut on Wednesday was online book seller, E-Commerce China Dangdang Inc. (NASDAQ/DANG), sometimes referred to as the Amazon.com (NASDAQ/AMZN) of China and you know how AMZN has done in trading. DANG was subscribed at $16.00, and nearly doubled to $30.55 in trading on Thursday morning.

Prior to YOKU and DANG, there were several new Chinese IPOs coming to the market that debuted well above the IPO price and surged. These included Country Style Cooking Restaurant Chain Co., Ltd. (NASDAQ/CCSC), an operator of fast-food eateries. The stock was priced at $16.50, but debuted at $25 on September 28 and surged to $36.45, before settling back to the current $22.96 level. In our view, I feel the buying frenzy is too optimistic. Another example is Chinese online real estate portal SouFun Holdings Ltd. (NASDAQ/SFUN), which debuted at $67.00 on September 17, surged to $95.50, and continues to hold above $75.00.

The IPO action indicates that there continues to be speculative trading and excitement towards Chinese companies, something that I have maintained despite the SCI being down over 28% earlier in the year. The key in China is patience and buying on weakness.

The key to trading Chinese IPOs is to wait for several weeks and watch if the stock settles down in a set buying range. Buying on the first day can generate some impressive returns, as we saw in YOKU and DANG on Wednesday, but it also makes you vulnerable to downside profit-taking, especially if you do not get in near the IPO price.

Just be patient, follow the stock, and wait for weakness to buy. For China, a country that has been around for thousands of years, patience has been a critical trait.