China IPO market hots up with new stocks up 420%

BEIJING • China's market for initial public offerings (IPOs) is the hottest it has ever been, thanks to the securities regulator.

The 62 new stocks that have completed their first month of trading this year soared 420 per cent on average in the span, the steepest such rally on record, data compiled by Bloomberg showed.

For a clue as to why: The average size of this year's offerings has dwindled to US$88 million (S$118.2 million), the smallest since 2005.

While huge returns on mainland IPOs are not new, the numbers are getting even more eye-watering as the China Securities Regulatory Commission (CSRC) seeks to stabilise the nation's US$6.1 trillion equity market. Officials asked arrangers and companies to limit their deal sizes in the first half to avoid an oversupply of shares, according to people with knowledge of the matter, and a proposed registration system that would have given firms more flexibility on IPO pricing and timing has been delayed.

The Shanghai Composite Index is down 16 per cent this year, one of the world's biggest declines.

"Regulators are carefully watching and testing market reactions as they approve IPOs," said money manager Dai Ming at Hengsheng Asset Management in Shanghai. "They tend to tighten approvals when the market slumps and release more deals when sentiment improves."

More than 800 companies have filed IPO applications and are waiting for approval, according to the CSRC's website.

The 78 completed sales this year compares with 219 in all of last year, and the value of the deals is about a quarter of the 2015 amount, Bloomberg data showed.

Chief strategist Hao Hong at Bocom International in Hong Kong said: "Investing in A-share IPOs is highly profitable because regulators keep prices low. The odds of winning initial shares are falling as returns surge."

For the 13 stocks that started trading last month, the average chance for a retail investor to be allocated any shares in an offering was 0.04 per cent, data compiled by Bloomberg showed.

The CSRC has been signalling a tougher stance on letting companies list in China, warning brokerages last month to improve their standards when helping clients raise money. The regulator is also said to be considering measures to curb the flow of overseas-traded Chinese companies seeking back- door listings on the mainland.

As the market stabilises, the CSRC is set to approve bigger deals for the second half, the people familiar with the matter said.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on August 05, 2016, with the headline 'China IPO market hots up with new stocks up 420%'. Print Edition | Subscribe