Investors rush for mainland IPOs despite liquidity worries

Four stock offerings attract heavy demand as punters bank on chance to make quick profits

PUBLISHED : Saturday, 21 June, 2014, 12:53am
UPDATED : Monday, 23 June, 2014, 9:25pm

The first four new share offerings after a months-long suspension on the mainland drew heavy subscriptions as retail investors flocked to make first-day gains.

The buying euphoria over initial public offering shares renewed concerns about a capital outflow from existing holdings despite the regulator's efforts to control the pace of fresh equity supply.

Among the four companies that conducted online subscriptions on Wednesday, Shanghai Lianming Machinery saw its 8 million shares offered to public investors 515 times oversubscribed while Wuxi Xuelang Environmental Technology attracted subscriptions 393 times the amount of shares on offer.

The other two companies, Feitian Technologies and Shandong Longda Meat Foodstuff, were also oversubscribed by more than 100 times.

Beijing suspended new initial share sales in October 2012 to bolster investor confidence before the China Securities Regulatory Commission lifted the ban at the beginning of this year.

Dozens of companies that received listing approvals before October 2012 were allowed to raise funds on the Shanghai and Shenzhen stock exchanges in January and February.

The market buzz was that the first batch of offerings following a four-month hiatus would soak up funds from existing stocks as investors generally tend to punt on new shares to gain from first-day rallies.

Nearly all shares on the mainland tend to rise on the first day of trading.

CSRC chairman Xiao Gang announced last month that only 100 listings would be approved in the second half of this year, in an apparent effort to underpin existing stocks.

The Shanghai Composite Index fell 2.13 per cent to 2,026.67 points this week, the biggest weekly drop since the week to April 25. Worries are mounting among retail investors that the key market index will soon crash below the psychologically important 2,000-point level.

"Many investors thought the initial public offerings provided them the only opportunity to make profits on the stock market," said West China Securities analyst Wei Wei. "The buying spree on the first four offerings was within expectations."

About 600 companies have lined up to raise funds on the stock market amid Beijing's monetary tightening.

The CSRC plans to reform the listing mechanism to let market forces play a decisive role in fundraising activities. But a weak market has deterred the regulator from relinquishing its power on approving new stock offerings.