IPO surge may lower stock prices

China Daily European Weekly - - Business - By LI XIANG lix­i­ang@chi­nadaily.com.cn

An­tic­i­pa­tion of the reg­u­la­tor’s ac­cel­er­a­tion of new share sale ap­provals as well as the push for fi­nan­cial delever­ag­ing could be a source of pres­sure on the Chi­nese stock mar­ket in the com­ing weeks, an­a­lysts say.

There have been signs that the Chi­nese reg­u­la­tor wants to ac­cel­er­ate the ap­proval of ini­tial pub­lic of­fer­ings this year as pres­sure in the IPO pipe­line has been mount­ing, with more than 700 com­pa­nies queue­ing to is­sue new shares.

In the past two weeks alone, the reg­u­la­tor has ap­proved 24 IPOs, more than dou­bling the num­ber of deals of the same pe­riod in 2016.

“This is a sig­nal that the reg­u­la­tor is speed­ing up the ap­proval of IPOs, which could weigh on the cur­rent mar­ket price,” says Li Yuebo, an an­a­lyst with In­dus­trial Se­cu­ri­ties Co Ltd.

The China In­ter­na­tional Cap­i­tal Corp es­ti­mated that the reg­u­la­tor will likely ap­prove about 500 IPOs this year, rais­ing roughly 300 bil­lion yuan ($43.8 bil­lion; 29.6 bil­lion eu­ros; £26.2 bil­lion).

The State-run Xinhua News Agency last week quoted ex­perts as say­ing that China’s “nor­mal­iza­tion” of IPOs could help raise the fi­nanc­ing ef­fi­ciency of com­pa­nies and di­rect more cap­i­tal into the real econ­omy. The re­port made the mar­ket more volatile, as in­vestors wor­ried that more IPOs could drain mar­ket liq­uid­ity and push down stock prices.

The se­cu­ri­ties reg­u­la­tor also said on Jan 20 that it will adopt new mea­sures to curb fre­quent re­fi­nanc­ing deals by listed com­pa­nies or a sin­gle deal that raises an ex­cess amount of cap­i­tal. The reg­u­la­tory move could help chan­nel more cap­i­tal into the IPO mar­ket.

Lu Xiaofeng, an­a­lyst with BOC In­ter­na­tional Co Ltd, says that the over­all mar­ket will main­tain the trend of con­sol­i­da­tion ahead of the Chi­nese New Year hol­i­day as fac­tors, in­clud­ing the ac­cel­er­a­tion of IPOs, will lead to a re­duced risk ap­petite among in­vestors.

Mean­while, Gao Ting, head of China strat­egy at UBS Se­cu­ri­ties, says the Chi­nese gov­ern­ment’s ef­fort to push for fi­nan­cial delever­ag­ing will likely con­tinue, which could be a source of pres­sure on the mar­kets in the com­ing months.

In ad­di­tion, 52 per­cent of in­vestors sur­veyed by UBS iden­ti­fied de­pre­ci­a­tion of the ren­minbi and cap­i­tal out­flows as the big­gest risks for the A-share mar­ket this year, fol­lowed by eco­nomic weak­ness driven by an­other prop­erty slow­down (32 per­cent) and spillover of bond mar­ket volatil­ity into stocks (16 per­cent).

None­the­less, the ma­jor­ity of in­vestors polled by UBS are op­ti­mistic on Chi­nese stocks, with 86 per­cent ex­pect­ing the MSCI China In­dex to strengthen in the next 12 months, and over 50 per­cent ex­pect­ing at least a 5 per­cent in­crease.

“Nearly 80 per­cent of in­vestors said they be­lieve the rally in cycli­cal sec­tors will con­tinue this year, as sup­ply-side re­form deep­ens and de­mand re­cov­ers,” Gao says.

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