Keep an eye on the Chinese and Brazilian stock markets on Monday.
The two emerging market nations - both members of the BRIC group (Brazil, Russia, India, and China) - will each welcome a major new IPO to their respective stock markets.
The fact that they’re debuting on the same day is purely coincidental, but the story here is that both are very significant not only to their own countries, but could also underpin the emerging market area.
Let’s take a look at these IPOs in the context of the broader emerging market topic… the effect this often volatile but flourishing pack of nations is having on the global economy - and how you can hitch a ride…
Emerging Markets Rebuilding Momentum
In the excellent movie "Wall Street," Michael Douglas’s slimy Gordon Gekko character famously proclaims, "Greed is good. Greed works."
Some equally unscrupulous Wall Street characters lived by this mantra. But they became so fat and bloated that they clogged the arteries of the entire financial system. Greed was most definitely not good - and it certainly didn’t work.
When the system toppled over, little was spared. Certainly not emerging market nations, which were unable to withstand the worldwide financial earthquake. While their GDP growth is rapid and their economies are flourishing, they’re still raw in terms of crucial elements like infrastructure, and are more susceptible to volatility.
So when the U.S. sneezed, the world caught Wall Street’s swine flu (ironically caused by swines in the first place). Emerging markets fared just as badly (or worse in some cases) as the U.S. and other global heavyweights like Japan and Europe.
But the big new IPOs in China and Brazil signal that the tide is gradually turning and emerging markets are rebuilding their momentum…
China’s 9-Month IPO Itch
The fallout from the global meltdown crushed China’s Shanghai Composite (^SSEC) stock market by 60%, prompting regulators to impose a 9-month ban on new IPOs.
But on Monday, small-cap Chinese drug maker Guilin Sanjin Pharmaceutical Co. will end it by debuting on the Shenzhen market, the smallest of China’s exchanges. The move comes on the back of a scorching 58% climb for the Shanghai Composite this year, amid confidence that the government’s multi-trillion yuan of stimulus money will help the flagging manufacturing sector and trade market.
After a 9-month IPO absence, the decision to "start small" with the Guilin launch is a good one (the firm will offer 46 million shares). A mass relaunch, with bigger, more heavily hyped companies could put too many shares on the market at once - and high-profile disappointing debuts could knock confidence. When the ban was imposed, 37 companies had received IPO approval, so this may kick off a new wave.
Meanwhile, in Brazil…
Brazil Goes Big… And Lula Bangs The BRIC Drum
Like China, Brazil’s stock market is also up big this year. Not as big as Shanghai’s 58% surge, but the 35% year-to-date gain for Sao Paolo’s Ibovespa (^BVSP) is still impressive.
Besides, Brazil is expected to take advantage of that run by notching up the biggest IPO of 2009 so far - and the biggest in its own history, too.
