Chinese IPOs post record 392% gains as rest of market languishes

BEIJING (BLOOMBERG) - It's been a tough year for China's stock traders - apart from those who conquered 1-in-2,500 odds to get a slice of an initial public offering.

Mainland equities surged a median 392 per cent in their first month after listing in 2016, the best return since Bloomberg began compiling such data in 1994. Helped by regulatory guidance that suppresses IPO valuations, newcomers soared even as the benchmark Shanghai Composite Index fell 12 per cent, set for one of the world's biggest declines. A total of 226 companies went public in China this year, the most since 2011, according to data compiled by Bloomberg.

While China's IPO profits were larger this year, they were also harder to obtain. New rules took effect Jan. 1 allowing investors to subscribe for shares without prepaying, meaning the average odds of getting an allocation plunged to 0.04 per cent this month from 0.64 per cent a year ago.

"In a weak market, speculators crowd into new shares where they believe selling pressure is low," said Zhang Haidong, chief strategist at Jinkuang Investment Management in Shanghai.

The appetite for IPOs has been driven by abundant liquidity as well as the valuation limit of 23 times earnings, which forces companies to sell shares at levels below their listed peers, said Hao Hong, chief strategist at Bank of Communications International Holdings Co. in Hong Kong.

Average IPO size is US$106 million this year vs US$117 million in 2015, while 43 firms started trading in December, matching the highest monthly tally since May 2015. New stocks jumped by a median 290 per cent in their first month of trading last year.