It has been suggested that the strong debut of China Railway in Shanghai on December 3 might ease fears about Chinese IPOs faltering. After all, the 70% gain posted by the country’s premier railway construction firm followed closely on the heels of disappointing performances by Chinese companies the previous week. Sinotrans Shipping, a dry bulk carrier, and Sinotruk, a heavy-truck manufacturer, saw their shares fall by 13% and 15% respectively on their market debuts.
But the key factor here is that Sinotrans and Sinotruk listed in Hong Kong, not Shanghai. Mainland investors are still starved of strong companies to buy into and there is plenty of money sloshing around in the system to accommodate new offerings. Given that stock offerings in Shanghai usually involve the release of a comparatively tiny number of shares at an unreasonably low price, demand is all but certain to outstrip supply. As a result, companies routinely see massive opening day gains (PetroChina closing up 163% anyone?).
It’s worth noting that, had these IPOs been priced more realistically, the companies issuing shares would have walked away with a lot more money. But what do they care? As far as the executives of the state-owned firms are concerned, they are now lords and masters of some of the world’s largest corporations. And for the state itself, which ultimately owns the shares being sold, the priority is creating a strong and fast-growing market.
Hong Kong is a different market entirely. It reflects global economic concerns as, unlike the mainland, global investors enjoy a very strong presence. And rather than wallowing in cash, these foreign players are counting their pennies in an uncertain environment for equities – so a thumbs down for Sinotruk doesn’t necessarily equate to a thumbs down for Chinese IPOs.
As such, it is premature to say that a strong performance by China Railway A-shares heralds a reengagement with Chinese listings after a week of uncertainty. The debut of the company’s H-shares in Hong Kong on Friday is the real acid test.