Stay Away from Chinese IPOs

On Monday, Cramer reminded his "homegamer" viewers to avoid Chinese initial public offerings.

Chinese companies often become public in the U.S. and witness a huge pop in the first day of trading, only to post staggering losses in the after market. The brokerage firms that underwrite these deals like to compare them to successful U.S. companies in hopes of attracting investors. Dangdang , for example, compared itself to the Chinese version of . It soared 86 percent in its first day of trading, but them got crushed in the after-market, falling some 70 percent. was likened to Google's YouTube and soared 161 percent on its first day of trading, but is now down 31 percent. Renren has been compared to Facebook and it gave a 28 percent return on its first day of trading, but has since taken a 61 percent nosedive.

It's important to recognize that Chinese IPOs are not what they used to be, Cramer said. In the 1990s, the Chinese companies that first went public in the U.S. were mainly manufacturing plays. At the end of the decade, there were more strategic privatizations of state-owned firms with real value, like China Telecom and Petro China. Lately, though, it's been a lot of growth-focused companies. Investors are so eager to get in on the action, they are not paying attention to the fundamentals of the underlying company. That's concerning because China does not have the same level of transparency or financial controls the U.S. does. Chinese companies don't have disclosure requirements either.

Bottom line: Stay away from Chinese IPOs.

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