Many bourses covet the success enjoyed by China’s stock markets, and the end-of-year tally showed that envy is well justified. According to financial research firm Dealogic, initial public offerings (IPOs) in Hong Kong and mainland China generated a staggering US$52 billion in 2009.
A breakdown of the figures shows that Hong Kong alone whipped up over US$27 billion versus US$26.5 billion in US listings, and market strength appears to be reaching over into this year.
"China is likely to lead the global IPO recovery in the next 12 months," stated Jing Ulrich, chairman of China equities and commodities at J.P. Morgan.
Multiple share offers may cause some market saturation in the near-term, but Ulrich expects the strong pipeline of IPO candidates likely to enter the market in 2010 to offer plenty of additional investment opportunities in the long term. Fraser Howie, author of a book on China’s stock markets, agrees that the strong demand for capital is set to continue this year.
But despite that demand, the IPO market saw some year-end first-day misses. In November, China Minsheng Banking Corp became the first Chinese lender in four years to fall on its first day of trading in Hong Kong, while China Shipbuilding Industry, which raised US$2.1 billion in its IPO, closed up just 12% on its December debut in Shanghai against an expected gain of 20-30%.
Howie puts the muted reception for recent China IPOs down to companies overreaching and investor fatigue. "Some of the companies listing have been greedy with their valuations, and investors are becoming more choosy about what they buy into," he said.
In the pipeline
With valuations still well below their peaks in 2006 and 2007, many observers believe that demand for IPOs in 2010 will remain strong as more state-owned enterprises like Agricultural Bank of China move closer to listing. "Chinese equity valuations are in the middle of long-term multiple ranges for now," said Michael Kurt of Macquarie Securities in Hong Kong. "The earnings consensus seems realistic and achievable so there is nothing at all irrational about current markets."
That is encouraging news for companies and the growing number of IPO platforms available to them, including Shenzhen’s ChiNext. In December, eight companies looking to list on the start-up board tripled their IPOs after seeing the huge gains of companies that listed in October. More boards may be on the way, and expectations are high.
"The anticipated launch of a Shanghai International Board will boost the momentum of onshore listings," J.P. Morgan’s Ulrich noted.