"IPO companies generally provide investors with new investment opportunities and enlarge the existing investment universe. Market liquidity also improves as a result," he says. Mobius says he does see opportunity in IPOs but only at the right price.
"We see opportunities in all companies including IPOs. An investment opportunity can arise in any form and we must be prepared to invest at the time. We treat IPOs just like any other investment. We evaluate these companies just like we do all the other companies in our investible universe."
The importance of investments in China is illustrated by Financial Express data showing that there are 15 IMA sectorised funds with a 50 per cent or greater exposure to the country. This is up from just five funds 10 years ago. In total, their assets under management (AUM) amount to more than £8.68bn.
According to data from GEO Monitor published at the end of April, there are 11 Chinese companies proposing IPO launches throughout May and July. One of the biggest is expected to come from Agricultural Bank of China, which is believed to be issuing A and H shares in July of this year.
Gartmore's China Opportunities fund manager, Charlie Awdry says the possible issue will be a big test of investors' appetite for IPOs and will be interesting to watch.
Meanwhile, Fidelity's China Focus fund portfolio manager, Martha Wang says active development in the Chinese IPO market is welcome news.
"Currently MSCI China is still fairly concentrated in its universe, dominated by a few key sectors and large cap stocks. To a certain extent, the stock universe doesn't truly reflect China's underlying economic dynamics. With the active development of the Chinese IPO market in recent years, the market's breath and depth has been and will be greatly enhanced," she says.
Performance of MSCI China over 10-yrs
Source: Financial Express Analytics
Going forward, Wang says the size of the companies listing will be different. "In 2005-07, following the restructuring of many SOE's and the subsequent IPOs, there was a flood of H & A shares in the market. Companies in banking, materials and the construction sectors were among the large caps which listed during the period. In the future, companies seeking to list might be smaller sized private enterprises with the average deal size of around $309m," she says.
Wang says the long-term investment potential of a stock depends on its quality. She believes that given China's strong growth potential, there are still many great companies coming into the market. "The IPOs offered an attractive return to the investors with an average gain of 1.4 per cent after the first day of trading following the IPO. The year-to-date returns for the new IPO companies this year averaged around 7.2 per cent," she says.
Awdry says broadly speaking he will participate in IPOs but states it would have to be a good company at a good price. "There is literature which demonstrates that investing in IPOs over the long-term is not a good strategy.
"Often once listed they fail to deliver expectations, very often the reasons for this is that they list when times are good and if times are less good the company can disappoint," he says.
"If you spoke to a Hong Kong investment banker I think they would say that their pipeline is quite good and that there are a lot of deals that could be done this year. I think given the state that the markets are in at the moment, I would be very surprised if they all got done.
"We have lots of opportunities to buy in the secondary market and therefore to be buying in the IPO market it would have to be a good company at a good price."