China's largest memory chipmaker wants to go public. Investors are worried it will siphon cash from China's stock market. They're calling it a cash drain. Here's a question: what exactly did they think was going to happen?
CXMT makes memory chips. Now it wants your money. The concern is that when CXMT launches its blockbuster debut, retail traders will pull funds from other Chinese equities to chase the shiny new offering. This is apparently a fear. Not a certainty. Not a prediction. A fear.
Picture the Chinese retail trader who's been holding bags in a market that's done nothing but disappoint for years. His portfolio looks like a crime scene. He's down 40% on stocks he can't pronounce. Then CXMT shows up. A memory chipmaker. Going public. In this economy. And his first instinct is to sell his losers to buy into this thing on day one at a valuation that makes absolutely no sense.
The fear is rational. The behavior would be rational too, in the same way that setting your hair on fire to stay warm is technically a heat source.
Blockbuster debut. That's the phrase they used. Blockbuster. As if CXMT is the Avengers of semiconductor manufacturing. As if opening day won't be a parade of bagholders passing the baton to a fresh crop of bagholders who think this time will be different because the company has "largest" in its title.
The Chinese stock market is already a liquidity sinkhole. Now they're adding another hole. A memory chip-shaped hole. And the worry is that money will flow into it. Because of course it will. That's what holes do. They take things. In this case, they take retirement accounts and turn them into expensive lessons about IPO pricing.
CXMT gets to go public. China's equities get drained. Retail gets f*cked. At least the memory chipmaker has a good name for it—nobody's going to forget this one.
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