Date
11 December 2017
An information booklet of China Literature, the online reading unit of Tencent. Its IPO locked in investor capital of more than HK$520 billion, making it the 10th hottest IPO in Hong Kong. Photo: Bloomberg
An information booklet of China Literature, the online reading unit of Tencent. Its IPO locked in investor capital of more than HK$520 billion, making it the 10th hottest IPO in Hong Kong. Photo: Bloomberg

Market bubble may burst soon

The biggest news in the technology space lately was the US$103 billion bid by Broadcom to acquire Qualcomm. If it succeeds, that would mark the biggest ever deal in the technology industry since Dell paid US$65 billion to purchase EMC.

Also, the deal would create the world’s third largest chipmaker after Intel and Samsung, and the world’s No.1 smartphone maker. The market believes the deal price is sensible, and shares of both Broadcom and Qualcomm have rallied.

In fact, global equity markets have risen to a record high. Bitcoin has spiked five times this year. I believe there will be a mega deal such as Broadcom and Qualcomm on the way. That reminds me of a similar market scenario before the 2000 dot-com bubble.

I can’t predict when the stock market may crash as I don’t have a crystal ball. But the market hype is there as everyone is eager to subscribe to new shares. Those who have gone through the 2000 market bubble and 2008 financial crisis should be wary of this.

A mega deal would certainly create many billionaires, but it may also have some downside. The merger of a large company with another leading player may lead to lay-offs. It also takes a long time to integrate the operation of two companies, therefore, the company growth trajectory may slow down. It takes a long time for a whale to digest after it swallows an elephant. The tech bubble has affected many potential companies, and the whole tech sector has also slowed.

The market becomes excited when there are more and more mega deals. A correction is unavoidable whenever there is an unexpected event, for example, a US a war with terrorists. The market would see a domino effect. History tells us the market hype may not sustain for long.

This article appeared in the Hong Kong Economic Journal on Nov. 15

Translation by Julie Zhu

[Chinese version 中文版]

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BN/RA

Hong Kong Information Technology Federation honorary chairman

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