HONG KONG: Hong Kong has taken the crown as the global capital, ranked by 2009 IPO dollar value, for stock-market listings, according to Dealogic. The exchange has bagged $27 billion of public offerings in 2009 to date, compared with $26.5 billion in New York. This says more about easy money and market mania than it does about China's rise.

Three kinds of companies have given the Hong Kong exchange its prize. First, those that failed to list in past cycles. Second, Chinese firms looking to tap investors who are bullish about China's growth. Finally, those that have diverted fundraising from other countries and markets. Consider the spin-off of casino assets by Wynn and Sands, or the $2 billion IPO of Russian metals giant Rusal, scheduled for early in 2010.

Despite these impressive numbers, Hong Kong's supremacy may be misleading. In the mainland, initial public offerings are of disproportionate importance to the equity market. For equity fund raising overall, New York still reigns supreme, with $226 billion raised this year, three times the amount in Hong Kong. As if to illustrate the point, US lenders Citi and Wells Fargo announced a total of $30 billion in follow-on stock sales on Monday - notching up almost half the total amount of equity raised in Hong Kong so far this year.

Moreover, the liquidity tsunamis that are driving Hong Kong's equity market may also bring it crashing down. Excess savings from the mainland are leaking over the border in search of a return, amid China's extraordinary monetary easing program. From the other side of the world, investors are borrowing at the near-zero rates in the United States and reinvesting in Hong Kong stocks and property for a higher return - a revival of the boom-time "carry trade".

This is creating big distortions. Hong Kong's pool of cash and demand-deposits has grown almost 50 percent as investors shift their funds away from longer-term savings into a form they can spend or invest. Its house prices have risen for ten months in a row, and any IPO that rises less than 20 percent on its first day is deemed a failure. China will rise, all right - but for now, it's the region's asset bubbles that are really getting bigger.

Reuters

(HK Edition 12/16/2009 page4)