Chinese IPO

Shanghai IPOs remain subdued despite stimulus

China's weakening economy and lack of fundamental reforms is casting a cloud over the country's IPO market.
<div style="text-align: left;">
Shanghai's stock exchange
<div style="text-align: left;"> Shanghai's stock exchange </div>

China’s securities watchdog will start reviewing applications for initial public offerings today after a two-month break, in the hope that the country’s stock market will gain momentum after the National Day holiday.

However, market participants expect the flow of IPOs to remain subdued. Despite a number of measures designed to shore up confidence, fundamental issues remain.

The first two companies to come before the China Securities Regulatory Commission (CSRC) will be Chongqing Gas and Shenzhen Suntak Circuit Technology. They are the first IPOs to be considered since July 31.

The authorities had hoped that shutting off the IPO pipeline would help stabilise the A-share market. But that is not all they have done — officials also went on a charm offensive, meeting wealthy investors around the world to promote investment in Chinese stocks, a move totally unthinkable just two years ago, when China worried foreign investors would flood the domestic market with speculative money.

The Shanghai Stock Exchange said in a Chinese press release that the overseas roadshow had received a “good response”.

Many analysts agree that Chinese stocks offer compellingly cheap valuations. Jim O’Neill, famed inventor of the Bric acronym and chairman of Goldman Sachs Asset Management, has said that Chinese stocks are the most attractive among the Bric nations.

China has also taken steps to reduce the barriers to overseas capital to make it easier for foreign funds to come in and support the A-share market. Previously, foreign asset managers needed a minimum of five years’ operating experience before they could enter the local market, but that has now been cut to just two years. The minimum fund size has been slashed to $500 million from $5 billion and, in April, the limit on foreign portfolio investment into China’s capital markets was hiked to $80 billion from $30 billion previously.

The measures haven’t yet helped to break the stock market’s losing streak, but it is too early to dismiss them as a failure. More foreign participants will benefit the stock market in the long run. In the short run, the problem is simple: China’s economy is not strong enough.

“Investor confidence is weak, but, on the other hand, issuers can’t get a satisfactory price,” said Edward Huang, an analyst at Haitong International Securities.

The World Bank cut China’s 2012 growth forecast to 7.7% this week, from a previous estimate of 8.2%.

“The weak exports and lower investment growth will cut down China’s GDP growth from 9.3% in 2011 to 7.7% this year,” the bank said in its latest East Asia report. “In 2013, however, China’s growth is expected to rebound to 8.1% as the impact of stimulus measures kicks in, supported further by an uptick in global trade.”

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media