PERHAPS the best example of the speculative frenzy now affecting all Asian markets can be found in Hong Kong where investors simply could not get enough of the mainland firms beating a path to list there.
But while the reception for China IPOs is white hot in Hong Kong, the first-day trading fervour has noticeably cooled.
The Sinopharm IPO in Hong Kong is a good example. The company only needed to raise US$1.1 billion but attracted a cool US$63 billion in subscription money.
Shouldn't an overwhelming response have translated into a rousing response when the shares made its trading debut?
But this morning when Sinopharm finally made the grand entrance, its share price started to fall, after opening at a high of HK$19.80 – a 23 per cent premium over its issue price.
Currently, it is trading at HK$18.74 – a mere 18 per cent premium over its issue price. This premium is rather small, by recent standards, when it is usual for a mainland IPO to open 30 to 40 per cent above issue price in neighbouring Shanghai.
This is surprising, given the rousing reception it had received during its IPO launch when it had attracted blue-chip investors such as Hong Kong banker David Li , China Life Insurance and Bank of China Group Investments.
As such, one would have expected the premium it would have commanded over its IPO issue price would have been much higher than what it has been given by the market today.
Some will say that Sinopharm's valuations had been rather rich, as it was priced at about 25 times 2010 projected earnings. In contrast, a recent IPO in Singapore - Gaoxian Fibre Fabric - was only priced at four times earnings.
But Sinopharm’s lacklustre debut is probably a symptom of a wider problem – the glut of liquidity sloshing around regional markets looking for a safe harbour.
After sitting on their cashpile for months, some investors have decided to come in from the cold and put their money to use again.
Since regional share prices have almost doubled in the past six months, they are simply putting their bets on the China IPOs which still offer some value, in their view.
Besides the incredible amount of money they put up in chasing these IPOs, they also had no problems in getting margin financing.
This serves to highlight another problem – banks are also flushed with cash. Since the IPO market in Hong Kong is so hot, they have also hopped onto the bandwagon, financing these high networth customers in chasing the IPO shares.
The risks to the banks are also marginal, since they only have to extend loans for a period of up to two weeks only.
Therein lies another dilemma. Like other Asian economies, the Hong Kong economy is slowly picking up the pieces, after the global financial crisis in the past two years.
For many businesses still suffering from the stresses of coping with the aftermath of the financial crisis, the white hot Hong Kong IPO market must seem like it is located in a different planet altogether.