What's going on?
Investors stripped off on Monday and dipped into Chinese bottled water company Nongfu Spring’s initial public offering (IPO).
What does this mean?
Nongfu makes its official market debut on Tuesday, but professional investors have already wet their whistle: the stock looks set to open at more than double its initial offer price. Thirsty traders placed $150 billion worth of orders for just $1.1 billion worth of shares – a new record for Hong Kong-listed stock sales.
The IPO therefore values Nongfu at roughly 60 times next year’s predicted profit. Rival Danone – which bottles Evian and Volvic – has a “price-to-earnings ratio” of 15, while drinks magnate Coca-Cola’s is 25. True, Nongfu does have a profit margin of almost 25% – but while that’s miles higher than 9% at Danone, it’s only a little higher than Coke’s.
Why should I care?
For markets: Testing the waters.
Investors have been betting on China’s rising middle class for years – and as richer consumers buy more bottled water, Nongfu’s 21% market share leaves it, ahem, well positioned. Hence perhaps why America’s Fidelity and Singapore’s sovereign wealth fund are happy to number among its “cornerstone investors”. Their promise to buy $320 million worth of Nongfu stock at any price might’ve encouraged a record number of other investors to pile in too…
The bigger picture: China’s looking strong.
Fresh data out on Monday showed Chinese exports rose almost 10% in August compared to last year, while imports fell 2%. Both changes were more extreme than economists had expected, making for a rising “trade surplus” – the difference in value between goods China sells to foreign buyers and those it buys from abroad. Strong export growth, if sustained, will likely boost China’s economy through the rest of the year.