Investors are chomping at the bit to get a piece of China at any cost. As always, you have people on both sides of the argument. One one side, you have the pessimists like noted short seller Jim Chanos arguing that China's rapid rise is doomed for a painful burst. On the other side are those who look at China's population as a sign that growth is here to stay, at least for now.

IN PICTURES: The 5 Steps Of A Bubble

Strong Appetites
This week included two Chinese IPOs that were met with a frenzy to rival the 1999 internet bubble. The first is Youku.com (NYSE:YOKU), aptly described as China's answer to YouTube, which had a breakout IPO day. Priced at $12.80 a share, the stock is was up by nearly 170% to $33.44 by the end of the day. The second IPO was e-commerce site DangDang (NYSE:DANG), which many describe as the Chinese version of online retailing giant Amazon.com (Nasdaq:AMZN). Excited investors lifted shares of DangDang by nearly 90% on its debut day.

The initial success of these IPOs is primarily due to the great optimism surrounding anything online in China. With a population of 1.3 billion - almost five times that of the U.S. - China provides a huge market opportunity. If 50% of China's population gets online, you are talking about a marketplace more than twice the size of the entire U.S. population. It's no surprise then that these IPOs were met with tremendous fanfare. How they will perform afterward, however, is a different story. For now, investors' appetite for China and the internet is strong.

Going Gaga
Not all Chinese IPOs have been smashing successes. A few weeks ago, Le Gaga Holdings (Nasdaq:GAGA), a Chinese-based grower of vegetables, enjoyed a nice IPO share pop, only to come back down the next day. Shares are trading below $9, down nearly 30% from the IPO high of $11.39 just a few weeks ago. Plus, at the current price, shares are trading at 23 times earnings, hardly an attention grabber for bargain hunters. Cleary, not all companies are benefiting equally from the euphoria over China.

The Bottom Line
Whether China is in bubble territory or not, investor excitement is clearly a reason to be very cautious. Everyone looking for growth outside the U.S. is piling into emerging and developing markets and China is topping the list. Ten years from now, it's likely that China's standard of living and economy will be significantly larger than it is today. But that progress will likely encounter bumps along the way. Optimistic investors today should consider themselves warned. (To learn more, see Riding The Market Bubble: Don't Try This At Home.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Markets

    The 5 Biggest Chinese Insurance Companies

    Read about the top Chinese insurance companies by market capitalization, and learn a little about their positions in the marketplace.
  2. Mutual Funds & ETFs

    Top 3 Switzerland ETFs

    Explore detailed analysis and information of the top three Swiss exchange-traded funds that offer exposure to the Swiss equities market.
  3. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  4. Mutual Funds & ETFs

    ETF Analysis: SPDR Dow Jones International RelEst

    Learn how the SPDR Dow Jones International Real Estate exchange-traded fund (ETF) is managed and for whom the ETF is most appropriate.
  5. Investing Basics

    Explaining Trade Liberalization

    Trade liberalization is the process of removing or reducing obstacles that impede the exchange of goods and services between nations.
  6. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  7. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  8. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
RELATED TERMS
  1. Trade Credit

    An agreement where a customer can purchase goods on account (without ...
  2. Equity

    The value of an asset less the value of all liabilities on that ...
  3. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  4. Optimal Currency Area

    The geographic area in which a single currency would create the ...
  5. European Sovereign Debt Crisis

    A period of time in which several European countries faced the ...
  6. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!