Initial public offerings in China have undervalued companies by up to $200 billion over the past six years, academic research indicates, reflecting a struggle to price listings in the world’s second-biggest equity market, reported the Financial Times.
Limits on the valuations at which companies can sell shares in IPOs on most Chinese bourses mean that groups listing onshore may have raised just a quarter of what they otherwise could have, according to a working paper provided exclusively to the Financial Times by researchers at the University of Hong Kong.
Researchers determined the extent of IPO underpricing by tallying up the early share price gains across almost 1,300 market debuts from 2014 to July 2020 on the main stock exchanges in Shanghai and Shenzhen, as well as the latter’s tech-focused ChiNext market and its small business-oriented SME Board. They found new stocks jumped on average 300% on their debut following reforms in 2014, compared with just 37 per cent under a previous listings regime. That underscores the challenges Beijing faces in making its markets more attractive for Chinese companies looking to float, analysts said.