IPO surge may lower stock prices
Investors see renminbi depreciation and capital outflows as major market threats
Anticipation of the regulator’s acceleration of new share sale approval as well as the push for financial deleveraging could be a source of pressure on the Chinese stock market in the coming weeks, analysts said.
There have been signs that Chinese regulator wants to accelerate the approval of initial public offerings this year as the 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 approved 24 IPOs, more than doubling the number of deals during the same period of 2016.
“This is a signal that the regulator is speeding up the approval of IPOs, which could weigh on the current market price,” said 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).
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 the market liquidity and push down stock prices.
The securities regulator also said on Friday 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, said 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 the investors.
Meanwhile, Gao Ting, head of China strategy at UBS Securities, said 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 risk 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 U BS 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 said.