Ignoring some warnings that the red-hot Chinese stock market is in a bubble and about to explode, UBS recently increased its stake in a venture with a mainland company controlled by the government.
The Swiss bank bought an additional 4.99% stake in UBS Securities, a venture with Guoxiang Asset Management, raising its holdings to a little below 25%, according to The Wall Street Journal (paywall). UBS purchased the shares from International Finance Corp, the private-sector arm of the World Bank.
UBS and IFC were part of a consortium that took over Beijing Securities in 2006 and the firm was renamed as UBS Securities, the WSJ said. Guoxiang owns the majority stake in the securities firm that are allowed to underwrite share sales and manage bond offerings in the domestic market.
The move comes at a time when China’s IPO fever is heating up.
China National Nuclear Power Co’s $2 billion initial public offering in the mainland has attracted $1.69 trillion yuan ($273 billion) bids from investors, according to Bloomberg. The strong market reception may entice other companies to consider selling shares to raise funds.
China has already overtaken the U.S. as the biggest IPO market in the world so far this year, according to MarketWatch.
The country’s stock market has been rallying in the second quarter and most recently, the key indices soared to seven-year highs, thanks to the frenzied buying from Chinese retail investors, as well as foreign fund and asset managers.
The rally has spurred warnings, and even some debates, on whether or not the stock market is now in a bubble.
The South China Morning Post quoted a BNP report as saying that the market is indeed in a bubble.
“The surge meets most of the usual definitions of an asset bubble: little, if any, fundamental support. For stock markets, ‘fundamentals’ are, of course, earnings. It is noticeable that the A-share surge has coincided with both steady downward revisions to GDP growth and flat to falling profits.”
Bubble or not, what is clear at this point is that investors, and for that matter, banks will continue to cash in on the market’s strong performance.
Photo credit: Michaël Garrigues via Flickr