From London to Hong Kong, big initial equity sales have all but dried up in the world’s major financial centers this year. But the Chinese market is booming.
Initial public offerings on exchanges across the continent have reached $57.8 billion so far in 2022, the largest on record for such a period, according to data compiled by Bloomberg. There have been five billion-plus IPOs since January, and another is on the way. That’s against just one such sale in New York and Hong Kong, and none in London.
China’s IPO market defied headwinds such as rising interest rates and fears of a U.S. recession, which all but crippled major equity fundraisings elsewhere. Bids in the Asian economy – whose monetary policy diverges from that of the Federal Reserve – are largely geared towards local investors.
The surge in listings, some market watchers say, is also driven by fears that economic conditions will deteriorate later in the year as surges in virus cases push Beijing to stick to the strict strategy of Covid Zero. Top executives signaled a softening of the official growth target of around 5.5% this year, undermining optimism about a rebound.
“Companies have a higher IPO drive as they see the first half as a better window of time to get listed than the time ahead,” said Shen Meng, director of investment bank Chanson & Co. “They have a weaker outlook for the market and fear that factors such as earnings uncertainty will make it more difficult to trade in the future than today.
As companies rush to get listed, China’s share of global IPO proceeds has more than tripled to 44% this year, from 13% at the end of 2021, according to data compiled by Bloomberg.
The better performance of newly traded shares also attracted listing candidates. Mainland IPO shares have risen an average of 43% this year from their listing price, compared with a 13% decline seen in Hong Kong.
Meanwhile, China’s benchmark CSI 300 index has fallen around 16% since December 31 – one of the worst performers among leading global equity indicators – as investors faced restrictions Covid stringent rules, a deepening real estate crisis and a continued crackdown on internet giants.
Admittedly, the new equity sales owe part of their strong performance to the fact that the valuation at IPO is capped by local rules. This usually ends up leaving gains on the table for newcomers – flops do happen, but they are rare.
Some of the deals that have pushed up the tally in China have political overtones. The telecommunications provider China Mobile Ltd. and energy producer CNOOC Ltd., the biggest debuts of 2022, both listed at home after being kicked out of the United States 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. What is unique among Chinese investors is these patriotic trades,” said Ke Yan, head of research at DZT Research in Singapore. “Buying stocks that help China be more independent from the rest of the world and resist US transactions is normal.”
The love of technology
Overall, however, the technology sector was one of the most active for new equity sales in China.
Demand for the 10.8 billion yuan ($1.6 billion) IPO of computer component maker Hygon Information Technology Co. exceeded the proposed amount by 2,000 times. Order taking began on August 3, just as US House Speaker Nancy Pelosi’s visit to Taiwan shook global markets.
A semiconductor maker, digital storage product maker and chip producer surged after their mainland debut on Friday. Together, their IPOs raised $1.1 billion.
Many of the stocks currently hitting the market in China “come from the tech sector, which investors seem eager to buy given the focus on building local capacity,” said Brian Freitas, analyst for the Smartkarma independent research platform in Auckland.