Chinese bank IPOs in Hong Kong underperform broad index

Smaller Chinese banks that have listed in Hong Kong in the past year are underperforming the rest of the market, and their exposure to China’s shadow banking system may be a major reason.

The lack of appetite for these shares is likely to make it more difficult for the dozens of smaller Chinese banks that also wish to list, bankers said. Only if they are able to sell a big portion of their shares to cornerstone investors will they find it easy to list.

Investors are wary of the levels of disclosure from the banks that have listed in Hong Kong in the past year, bankers said. They said that the risks of the banks’ involvement in selling and buying wealth management products in the Chinese mainland are unclear.

Of the six banks that have listed in Hong Kong in the past 16 months, all are underperforming the benchmark Hang Seng index. From their IPO prices, their shares have moved between a gain of 7.5 percent, in the case of Jilin Jiutai Rural Commercial Bank, to a decline of 21.5 percent for Bank of Tianjin. The Hang Seng Index is up 20 percent since Jilin Jiutai went public in January and has gained 35.3 percent since Bank of Tianjin’s debut in March 2016.

“You really find it difficult to find a catalyst at this moment to invest into the banks,” said Arthur Kwong, head of Asia-Pacific equities at BNP Paribas Asset Management in Hong Kong. “It’s not that transparent what kind of investments they are making.”

Those concerns may dampen demand for upcoming deals expected from Bank of Gansu, China Bohai Bank Co and Bank of Jiujiang. The three banks to list so far this year ( Jilin Jiutai, Guangzhou Rural Commercial Bank and Zhongyuan Bank) were all priced toward the bottom of their indicative ranges, indicating that investor sentiment remains weak.

Hong Kong’s Securities and Futures Commission declined to comment about the banks’ level of disclosure.