Sleeping through 1999 and not learning the lessons of the past

It appears that China-related IPOs that list on the US exchanges are the latest fad, with being the latest example. Shares (Nasdaq: YOKU) went up 161% upon their offering, and reached as high as $50/share from an initial price of $12.80.

Doesn’t anybody remember what happened in 1998 and 1999? Amazing how history is repeating itself. The only difference is that these companies are foreign, and even less accountable to shareholders than if they were domestically held!

Already you have a chorus of people that say the company is overvalued and ripe for shorting, but most prudent investors know that timing when “the top” will be is exceedingly difficult – a phrase to always remember is that the market’s ability to remain irrational can be longer than your ability to remain solvent. It will just be a matter of time, but predicting when this Chinese asset bubble will finally deflate will be a matter of debate – until after it occurs.

Although I am sure there will be some Chinese equities out there that will be stable and provide a decent return on investment, it should be noted that management is even more entrenched in these companies than in the US/Canada, where at least you can pick out some corporations that have shareholders’ interests at heart. It is impossible to pick out the very suspicious cases (e.g. earlier coverage of Universal Travel Group, NYSE: UTA) versus the legitimate companies. Investing in Chinese equities feels more like pure gambling, hoping for the herd to ram the share prices higher, rather than investing or even “speculation”.

Anybody from North America playing these types of equities has to realize that they are playing against players that are loaded with insider information, and Chinese language/culture knowledge. As a result, people would have to be insane to invest in these types of companies. It’s like going to war with a pellet gun when your opponents are armed with sniper rifles – and you don’t even know what your opponents were armed with when you entered into battle.

I am sure there will be a few people here and there that will be bragging about the small fortunes they made by investing in Chinese equity, but this is the financial equivalent of reading the list winners from the last lottery.