According to Global Sun Solutions, the spectacular success of the Alibaba IPO could herald a top in US equity markets.
East Shenzhen based Global Sun Solutions has reported that Chinese e-commerce giant, Alibaba Group Holdings, which went public in spectacular fashion last week with prices surging up to 38% on the first day of trading, could be signaling that equity prices – in the United States, at least – are exuberantly high. The stark prognosis was the subject of a research note sent to institutional clients at Global Sun Solutions late Friday evening even as the deal’s underwriters and shareholders celebrated as Alibaba’s stock price sailed through $92.
“Like most people, we fully expected the IPO to be a roaring success and the extent of the gain on the $68 launch price, was very impressive. Nevertheless, it’s worth remembering that bringing a company the size Alibaba to market is something that can only be done when overall market sentiment is bullish or there is a big chance of failure; the 38% surge just smacks of wild abandon among investors,” said Steven Aaron, VP at Global Sun Solutions.
The success of the IPO places a nominal value of $231 billion on the company founded by ex-teacher, Jack Ma in his apartment 15 years ago; way above estimates of $150-160 billion and more valuable than fellow internet giants Amazon and eBay combined.
“We’re certain that no one’s questioning the excellent growth potential of Alibaba – that would still be undeniable even if the company were to confine its activities to China and the rest of Asia exclusively but this kind of exuberance tends to herald the end of or at least a plateau in bull markets. Investors need to be wary of entering at the top of cycles,” continued Aaron.
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