27 October 2016
Xiao Gang, who chairs the China Securities Regulatory Commission, is likely to see a lot of new listing applications amid the favorable market conditions. Photo: Xinhua
Xiao Gang, who chairs the China Securities Regulatory Commission, is likely to see a lot of new listing applications amid the favorable market conditions. Photo: Xinhua

Why Chinese markets are not affected much by new listings

The stock market has been flooded with liquidity recently, and this has driven the prices of some stocks sky high.

The China Securities Regulatory Commission (CSRC) on Thursday approved the IPO applications of 25 companies, of which 10 will be listed in Shanghai, three on Shenzhen’s SME board, and 12 on ChiNext. 

This is the second batch of initial public offerings approved this month. It’s part of CSRC’s efforts to ramp up new share supply.

The move has stoked market concerns that the new listings will drain capital away from the market and reduce market turnover. There will be some psychological impact in the short term, although it is likely to be limited given the number of listings so far this year.

There have been 69 new listings year to date, and these new stocks have offered an average return of 185 percent until Thursday. Lured by the prospect of huge profit, a great number of investors want to bet on new shares. However, the chance of subscribing to new shares is around 0.66 percent so far this year.

While the demand for new shares is increasing, we have yet to see any major listing. The 100 new IPOs have only raised a combined 63.9 billion yuan (US$10.3 billion). Meanwhile, these new stocks have drained some 7.5 trillion yuan due to the cap on IPO subscriptions.

As such, the amount of capital drained from the market for IPO subscription is only several dozen or hundred billion yuan a day, a tiny proportion of daily turnover of trillions of yuan.

Policy changes have far more impact than new listings. The removal of export tax on various metal products on Thursday has become a major stock trading theme.

Chinese metal firms have been struggling with falling commodity prices in recent years, and steel and aluminum companies have posted huge losses.

To help the sector, the Ministry of Finance announced on Thursday that the export tax on molybdenum, tungsten, rare-earths and other products will be scrapped from May 1. 

The policy will affect more than 80 products currently slapped with an export tax of 5 to 25 percent. It will substantially reduce the tax burden of firms exporting these products.

As a result, metal and resources plays have shot up. Maanshan Iron & Steel (600808.CN), Jinduicheng Molybdenum Co. (601958.CN), Aluminum Corp. of China (601600.CN), China Northern Rare Earth Group High-Tech Co. (600111.CN), Xiamen Tungsten Co. (600549.CN), and China Molybdenum Co. (603933.CN) all hit the daily up-limit.

Also, comments made by Premier Li Keqiang in public have become a theme for market speculation. During his visit to Fujian’s Quanzhou on Thursday, he said the Made in China 2025 program should be accelerated to maintain the medium to high speed of China’s economic growth.

The Made in China 2025 blueprint for the manufacturing sector aims to bring new investment opportunities for robots, unmanned aircraft, large equipment, and infrastructure manufacturing, and other related businesses.

The program is also expected to benefit radio frequency identification, Internet of Things, sensors, machine vision, smart machine tools, cloud computing, 3D printing, wearable devices, and automobile electronics, according to some brokerage reports.

Most relevant plays are listed on Shenzhen’s ChiNext board. Investors could bet on Shanghai Baosight Software Co. (600845.CN), Avic Heavy Machinery Co. (600765.CN), Universal Scientific Industrial Shanghai Co. (601231.CN), and Great Wall Motor (601633.CN).

This article appeared in the Hong Kong Economic Journal on April 24.

Translation by Julie Zhu

[Chinese version中文版]

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a columnist at the Hong Kong Economic Journal

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