While initial public offering (IPO) activity in the U.S. has hit historical lows, the IPOs in Asia have soared to record high levels. Asian equity markets are flooded with new offerings, partly prompted by emerging markets’ soaring economies and partly by record-low bond yields. Since the beginning of the year, Asian equity markets have raised a whopping $134 billion. At the same time, while Asia is enjoying an expansion cycle, most developed markets are struggling to recover from the longest recession since the Great Depression.
In 1999, Asia’s IPOs represented only 12% of global IPO activity. Currently, Asia’s share is 66%. Leading the pack is China, which alone is expected to raise approximately $76.0 billion by end of this year. At the same time, U.S. IPO activity for 2010 is expected to decline 75%, accounting now for only 11% of total global IPO activity.
Without a doubt, Asia has opened itself up to the world as a place that is ready for major capital raising and ready for some serious investing. Of course, the assumption is that the region will continue to enjoy strong growth. There is plenty riding on this assumption, but many investors who may put their money into Asian IPOs this year must have been laughing all the way to the bank.
So far this year, Asian IPOs have on average gained an impressive 36%. Additionally, six out of 10 companies that comprise the best-performing IPOs on U.S. exchanges are either Chinese or Indian companies. At the same time, the S&P 500 Index and the MSCI Asia Pacific Index could only dream of such returns, both advancing less than seven percent this year.
The message is clear. The market wants more IPOs from Asia, because that is where the growth is. To illustrate, just three new deals, one in China, one in Malaysia and one in South Korea, will raise over $10.0 billion in new capital this month. Furthermore, the world’s largest IPO on record was closed last quarter by Agricultural Bank of China to the tune of $22.1 billion worth of shares. So far this year, six Chinese IPOs have raised $1.0 billion during the first three quarters of 2010.
In contrast, this year, not a single U.S. company has managed to raise more than 700 million dollars. To add insult to injury, 54 U.S. companies have either postponed their IPOs until the market conditions improve or completely backed off.
Now, investing in IPOs in emerging markets can be tricky. The market is not known for transparency, and regulatory oversight is, shall we say, finicky. However, the growth is just amazing and returns posted by some new issues are something we can only dream of in the case of domestic IPOs.
Risk is an inherent part of investing. It is up to you to decide how much of it you can tolerate. But if there is a chunk of money somewhere that you feel you can do without, check out Asian IPOs. If such companies are interlisted in North America and if, after doing your due diligence, you are still convinced that this might be a story worth pursuing, make a bet on it. You just might not regret it. Just look at George Soros’ investment in the SKS Microfinance IPO. The India-based lender ended up raising 353 million dollars in August and is expected to post 52% higher revenues. That is about a nine times’ faster growth rate than the average six-percent increase posted by U.S. companies so far in 2010.