China’s moves to cap first-day IPO gains prove to be a winning ticket for issuers and investors
More than 480 IPOs launched since 2017 have risen by the maximum permissible limit of 44 per cent on the first day of trading
For A-share IPOs, the measures introduced by the Shanghai and Shenzhen stock exchanges in June 2015 to cap the first-day gains at 44 per cent to tame speculative price swings, have turned out to be a “sure win” for issuers and investors.
All 432 initial public offerings in 2017, and 53 in the first five months of this year have ended with price gains of 43-44 per cent on the first day of trading, according to Bloomberg data. Moreover, the downward price limit of 64 per cent from the offer price set by the bourses has never been triggered.
In China, regulators have emphasised that such attempts to control first-day trading is to maintain market order. This is in stark contrast to other markets where market forces determine the prices as dictated by demand and supply.
Another form of price control, which has been in place since 2001, allows daily stock swings of 10 per cent in either direction. This means that if the price of a stock rises above or falls below 10 per cent from the previous day’s close, then any buying or selling can only be done at prices within that upper or lower limit.