You'll Know Asia's Liquidity-fuelled Rally Is Toast Once The Inevitable Wave Of Shady IPOs Hits

Now that the prospect of extended monetary stimulus in the U.S., Europe, and Japan has become far more likely, capital is pouring into Asia ex-Japan.

Stock indices in many Asian markets have surged, and its little wonder given that so much foreign money is simply pouring in, look for something (anything?) to buy.

Take Thailand and Indonesia for example, where foreign transaction volumes have exploded since the financial crisis. At the current rate, this year Indonesia will see the highest amount of foreign transaction volume ever and Thailand will be just shy of breaking its 2007 record, as shown below by numbers we put together:


Thing is, there’s still a good chance that waves of foreign capital will keep flowing given that many continue to see it as a no-brainer trade. Asian markets offer higher GDP growth than developed markets, the potential for currency appreciation gains, plus higher yields on many fixed income investments to boot.

So what might be future a sign that Asia’s liquidity-fuelled rally is starting to peak?

Shoddy Asian IPOs suspects Bloomberg’s William Pesek, and he’s not alone. He quotes hedge fund manager Jeff Coggshall of Tiburon Partners as saying, “the average quality of new offerings is beginning to fray slightly around the edges… a number of deals have mysteriously been pulled forward. It will doubtless not be long before some genuinely frightening IPOs begin hitting our desks.”

Hopefully we’re not quite there yet. Asia has actually had some high quality IPOs such as Malaysia’s ambitious Maxis telecom IPO in late 2009, share sales from some of China’s leading banks this year, or the upcoming IPO of AIG’s ‘AIA’ business in Hong Kong. Just make sure to pull back once the inevitable wave of shoddy and previously unheard-of companies comes to market. That’ll be the market’s stretch phase.

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