Max Nisen writes on Beijing Baofeng Technology, a company which manufactures virtual reality headsets, has exhibited perhaps one of the most ‘textbook’ stock charts in history. So why is this stock drawing attention from Quartz and Bloombery View’s Matt Levine? Below is a quick screengrab from Google Finance. It shows a consistent 10% increase in stock price day-to-day since its IPO on March 25th, 2015.
The lack of information and transparency on SHE:300431 is astounding, as a quick Google or Baidu search in English renders inconclusive results. For those who can read Chinese, here is a press release on the company: 1200700288.
As the Financial Times (paywall) points out, “Beijing Baofeng Technology, the online video company with the worried boardroom, is the leading example of IPO excess. After jumping by the maximum-allowed 44 per cent from the offer price when it floated in Shenzhen just over a month ago, the stock has risen by the daily maximum of 10 per cent every day since… Forget valuations; the company (“Storm” in English) has risen 17-fold in 26 trading days, making it far and away China’s best-performing stock this year. From being one of China’s tinier stocks, it is now valued at $2bn.”
Matt Levine puts it quite rightly, “Speaking of communism and equity market structure, I don’t … what even … why,” and why is precisely the question the Chinese Securities Regulatory Commission should be asking this textbook example of its Listing Rules. Levine also quite rightly points out that Beijing Baofeng, “went public in Shenzhen in March and has been going up by the daily limit ever since. It is not alone: “Every one of the 29 IPOs in Shanghai and Shenzhen this month have risen by the daily limit each day since.” Which makes them surely the worst imaginable markets for initial public offerings? I mean, great for investors, I guess, though the word “bubble” has come up. But for companies? Baofeng is up over 1,600 percent since its IPO. That IPO raised 214 million yuan at a market capitalization of 856 million yuan. The shares sold in the IPO are now worth 3.7 billion yuan. People complain about IPO pops for companies like Twitter, since they mean that Twitter “left money on the table,” but Beijing Baofeng left four times its market cap on the table.”
Max Nisen refers to the writing of Aswath Damodaran, NYU Stern professor, on his blog ‘Musings on Markets’, on Beijing Baofeng playing the IPO Pop game. Thus, Levine leaves us to question, “If every Chinese IPO is limit-up every day, what risk is the IPO pop compensating for?” It is therefore extremely interesting to observe the difference between ‘Western’ and ‘Eastern’ views on stock market behaviour!