Imagine that a very large and well-known U.S. or European bank held an initial public offering. And let's say that this IPO was well publicized, although, in its share sale documents, the bank made these disclosures:

-- Two months ago, five of this bank's executives were arrested on suspicion of defrauding some $20 million in funds.

-- A vice-president of this bank was convicted and jailed last year for embezzling $1.75 million.

-- Bank employees were accused last year in 75 cases of financial crimes involving $151 million.

Wait, there's more:

As reported by the International Monetary Fund, this bank "pays no attention to credit risk when setting loan rates".

This bank received tens of billions of dollars in public funds from the government to cover delinquent loans -- and will need tens of billions more of these funds to stay afloat.

Question: With the above in mind, would you invest in this IPO from a U.S. or European bank?

If "NO" is your one-word reply to that question, what about this one: With the above in mind, would you invest in this IPO from a Chinese bank?

Now, perhaps you think that location (U.S., Europe or China) is irrelevant to the question -- "bank", "corruption", and "IPO" in the same sentence is all you need to know to say "NO."

And I understand, of course -- but I'm here to tell you that lots of investors think otherwise. All the bullet points above apply to the Bank of China and its IPO, which has raised some $10 billion, making it the largest such offering in six years. Demand for shares of this IPO among retail investors exceeds the supply by a multiple of 80; the bank has had to print an extra one million IPO subscription forms (New York Times, Guardian UK).

In 1999, you could produce instant, mass herding psychosis among stock investors simply by uttering the word "Internet." With the above in mind, it's no stretch to say that "China" is now making recent history repeat itself.

-- courtsey of Elliott Wave International - applied Socionomics in action...