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Comment by zhoutong | Hacker News Reader

It's a hugely underpriced IPO in a bubble (Tech stocks average P/E is over 100). +/- 10% is the price limit in Chinese stock markets.

So rather than having a price jump, this stock continues going up with little volume, until the "real market price" is reached.

Edit: It's oversubscribed by almost 300 times. http://mobile.reuters.com/article/idUSL3N0WI22B20150316?irpc...

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In a restricted environment like this one, it seems like there must be big actively-traded dark pools lurking somewhere. Do they exist?

Edit: By dark pool in this context I might mean "black market"

No. There is off-market bulk settlement, but it's under the same pricing restrictions.

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Authoritarian government.

Just how undervalued could it be with a market cap of 13.37 billion yuan ($2.15 billion)? And it appears to have been going up 10% daily since March 27 when it launched (it's up over 1000% already).

And if it was so incredibly underpriced... why was it so underpriced?

Because the IPO prices in China are heavily regulated. Tech companies often raise little money in an IPO because it will always be significantly underpriced (generally 100%-300%).

The authorities will make sure your IPO is oversubscribed by at least 50 times to protect the investors, or they will not approve the IPO.

Weird considering the rationale they gave for approving this last batch of IPO's: "a move which could cool a stock market rally that has seen the benchmark blue-chip index surge 13 percent since the start of this year."

http://www.reuters.com/article/2015/04/03/us-china-ipo-idUSK...

Not contradictory at all. Because IPO is such a lucrative investment, each round of IPOs can draw as much as several trillion CNY. This amount of money would have to be withdrawn from the stock market to "cool it down".

If the profit is guaranteed (which it seems like, with the government restrictions), investment firms should be able to simply borrow the money to buy the newly issued shares.

Yes, and it's exactly what's happening. There's no market inefficiency here. During the few days when IPOs are available, the overnight interbank interest rates usually increase significantly compared to other days. On average you can expect to make about 10% p.a. almost-risk-free from IPOs, similar to gearing A-grade corporate bonds.

Who is buying it, by the way? What is the probable source of their money?

Anyone and everyone. Real estate investment has bottomed out, now Chinese cash is being funneled into the Shenzhen Stock Exchange.

Lots of free money flowing around in China, they're sniffing in the US too. Investment in Chinese tech companies is booming at a rate that dwarfs the dot-com bubble.

From http://www.bloomberg.com/news/articles/2015-04-07/u-s-dot-co...

The use of margin debt to trade mainland shares has climbed to all-time highs, while investors are opening stock accounts at a record pace. More than two-thirds of new investors have never attended or graduated from high school, according to a survey by China’s Southwestern University of Finance and Economics.

There is currently a margin (leverage) bubble in China. It will not end pretty.

the 500B-USD$ question is "When will it pop?"

The volume is still 78mm CNY ($12.6mm) a day. Why would anyone be selling?

Because if it tanks, it will likely go to -10% instantly, making it really hard to sell. The thing about price restrictions is that you can never be sure what the real market price is because no one has the information, especially in a bubble.

Most of the volume happens around market opening, because at that time no one is sure whether the stock will end the +10% strike that day.

If you want to sell at an all-time-high, you would have to risk losing out to sell at one of the +10% days.

Is there a US-based broker that can trade this stock?

This stock is listed on ChiNext, which is currently not available to foreign investors.

But you can always invest in NQ mobile. Another winner?

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