Business Comment: Look out for the South China Sea Bubble

Stand by for the South China Sea Bubble. The impending handover of Hong Kong to the Chinese has sent the colony's stock market into a frenzy and when investors are in that sort of mood the scent of burning flesh is rarely far behind.

The latest manifestation of this hysteria is the public offering of shares in Beijing Enterprises Holdings which closed yesterday 1,276 times oversubscribed. Put another way that amounts to pounds 19bn of cash chasing pounds 148m worth of shares.

When dealings start today the shares are expected to race to three times their issue price fuelled by the acute shortage of stock and the savage scaling down of applications.

For all that, Beijing Enterprises, the latest "red chip" to come to market, still amounts to a massive speculative punt.

The company has little in the way of assets and even less in the way of contracts but boy, when China opens up its markets, Beijing Enterprises will be the business to have your money in. Just consider its impeccable political credentials, being the financial arm of the Beijing local authority.

The parallels with the company that gave its name to the original South Sea Bubble are interesting.

That too was floated on a tidal wave of expectation - in its case that slave trading would be massively extended.

It too had impeccable political credentials - George I agreed to become its Governor and handed over a large chunk of the national debt to its safekeeping. It too sucked in thousands of investors. The rest is history.

The only sure-fire winners from the flotation of Beijing Enterprises are its sponsors, led by Morgan Stanley Asia, and the company itself, which will probably make as much on overnight deposit as the entire offer will raise in new capital.

The other sure-fire winners are those who can get their money out before Beijing Enterprises suffers the same fate as Denway, another red chip which floated a modest 658 times oversubscribed and soared briefly only to fall to earth with a bump.

With unintended irony, investors who miss out on Beijing Enterprises have been told to pick up their refund cheques at the Museum of Chinese Historical Relics. Maybe that will also become the resting place one day for the share certificates.