China Share Sale Malaise Seen Persisting Amid Economic Slump
The slowdown in China’s equity offerings may not be over just yet as the country’s economy remains in the doldrums and regulations for new listings become stricter.
(Bloomberg) -- The slowdown in China’s equity offerings may not be over just yet as the country’s economy remains in the doldrums and regulations for new listings become stricter.
New and additional share sales in mainland China and Hong Kong fell 43% from last year to $96.3 billion in 2023. The annual proceeds raised are set to the worst in a decade, Bloomberg data showed. That compares with a 51% increase in volume raised in the US and a 14% rise in Europe.
Chinese companies and their holders have refrained from tapping investors through stock sales as a weak economic outlook and fizzling expectations for a bazooka stimulus program weigh on sentiment. The onshore CSI 300 Index has fallen 14% this year, while the Hong Kong benchmark has slump over 15%.
“We hope to see more of a top-down approach in terms of policy support, and more focus on the economy, which will help us actually rebuild a little bit of investor confidence, with international capital hopefully flowing back into the China business,” said Selina Cheung, co-head of Asia equity capital markets at UBS Group AG in Hong Kong.
Measures introduced by Beijing to slow the pace of initial public offerings may also put the brakes on companies’ plans to come to market.
Stock performances have also been less than impressive. Local investors used to enjoy hefty gains from IPO stocks, but the average first-month gain for new shares on the mainland has fallen to 22% this year from 27% in 2022 and 81% in 2021, Bloomberg data showed.
Chinese brokerages are already suffering the consequences of the slowdown in activity, which saw them falling from the top of the global equity-underwriting league tables this year. Bourses in Shanghai, Shenzhen, Beijing and Hong Kong hosted only 16 new share sales larger than $500 million in 2023, compared with 39 last year.
Poor sentiment is also affecting Hong Kong’s status as Asia’s preferred listing hub. The city is poised for its worst year in terms of proceeds raised from IPOs since 2001.
Still, the tide may turn for the North Asian market. The number of companies seeking pre-IPO guidance has surged in December, with many of them planning to list on the Beijing stock exchange, according to a Shanghai Securities News report.
Among the larger deals expected in 2024 is Syngenta Group’s potential 65 billion yuan ($9.1 billion) offering, which was deferred this year due to market volatility. Investors are also keeping an eye on developments for the debut of Cainiao Smart Logistics Network Ltd., the logistics arm of Alibaba Group Holding Ltd., which could raise at least $1 billion.
“Some big, blockbuster IPOs being approved would be helpful to draw some of that liquidity back,” UBS’ Cheung said.
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