$58,00,00,00,000 BOOM – China’s IPO Market Trounces The World!

China's IPO market has gone up significantly even as large initial share sales have all but dried up across the world’s major financial centers

Beijing: Even as large initial share sales have dried up across the world’s major financial centers this year, China’s market is bustling with activity.

Initial public offerings on mainland exchanges have climbed to $57.8 billion so far in 2022, the largest ever for such a period, according to data compiled by Bloomberg. 5 IPOs above $1 billion have already been listed since January, and one more is on the way. That’s versus just one such sale each in New York and Hong Kong, and none in London, according to Bloomberg report.

The IPO market in China has apparently defied headwinds such as hike in interest rates and fears of a US recession, which have brought major equity fundraising elsewhere to a virtual standstill. Offerings in the Asian economy – where in monetary policy is diverging from the Federal Reserve – are largely geared toward local investors.

China IPOs Versus Traditional Markets

According to certain market watchers, the surge in listing in the Chinese market is also driven by concern that economic conditions could worsen later in the year. Beijing had resorted to the infamously strict Covid Zero strategy earlier when the crisis worsened. Top leaders have signaled a softening on this year’s official growth target of around 5.5%, denting optimism about a rebound.

“Companies have a stronger willingness for IPO because they see the first half as a better time window to get listed than the time ahead,” said Shen Meng, a director at investment bank Chanson & Co. “They have a weaker outlook for the market and worry that factors including earnings uncertainty could make listing in the future harder than now.”

Secondary Market

As companies get added to the list, China’s share in global IPO proceeds have jumped to 44% this year from 13% at end-2021, according to data compiled by Bloomberg.

Better performance of newly traded stocks has also been a draw for listing hopefuls. Shares of mainland IPOs are up by an average 43% this year over their listing price, versus the 13% drop seen in Hong Kong.

Despite the surge in listing, China’s benchmark CSI 300 Index has fallen about 16% since Dec 31 — one of the worst performers among major global equity gauges. This fall can be attributed to the investors who grappled with stringent Covid curbs, a deepening real-estate crisis and a continued crackdown on internet giants.

To be sure, new share sales owe part of their strong performance to the fact that valuation during the IPO is capped by local rules. That typically ends up leaving some gains on the table for the newcomers — flops happen, but they’re rare.

Some of the deals that boosted the tally in China have political undertones. Two of the biggest debuts in 2022, the telecom provider China Mobile Ltd., and energy producer CNOOC Ltd., were both listed at home after being kicked out of the US following their inclusion on a Donald Trump-era blacklist. In China, they raised $8.6 billion and $5 billion, respectively, and are trading well above their listing prices.

“China is a separate market from the rest of the world. Something that is unique among Chinese investors are those patriotic trades,” said Ke Yan, the head of research at DZT Research in Singapore.

“Buying stocks that help China to be more independent from rest of the world and to resist transactions from the US is normal.”

In Love With Tech

Overall though, the tech sector has been one of the busiest for new share sales in China.

Demand for computer component manufacturer Hygon Information Technology Co’s 10.8 billion yuan ($1.6 billion) IPO exceeded the amount on offer by 2,000 times. Order-taking began on Aug 3, just as US House Speaker Nancy Pelosi’s visit to Taiwan rattled global markets.

A semiconductors maker, a manufacturer of digital storage products and a chips producer surged after debuting in the mainland on Friday. Together, their IPOs raised $1.1 billion.

A lot of the stocks now coming to market in China “are from the tech sector, that investors seem eager to buy given the focus on building up home-grown capabilities,” said Brian Freitas, an analyst for independent research platform Smartkarma in Auckland.