Beijing is on its way to lifting an eight-month suspension of new share offerings, in a move that may open the floodgates for a fundraising spree by cash-hungry companies on the mainland and gnaw off some of Hong Kong's listing business.
But though a relaunch of A-share initial public offerings would erode mainland firms' interest in Hong Kong in the short term, analysts said it could benefit local investors in the long term as low-quality IPO candidates from the mainland leave the city's stock market.
Yao Gang, a vice-chairman of the China Securities Regulatory Commission (CSRC), yesterday told executives of mainland brokerages at a conference in Beijing that mainland stock exchanges would restart IPOs as early as next month, said two sources.
This is the first time since October that a senior regulatory official has spelled out a timetable for the resumption of IPOs.
The CSRC couldn't be reached for comment yesterday. The regulator said it would take time to fine-tune the existing IPO mechanism, without disclosing the relaunch date.
Beijing temporarily halted new share offerings in October to stem a market slide by preventing fresh equity from draining more cash away from the existing shares.
The mainland IPO market, including the Shanghai and Shenzhen stock exchanges, was the world's largest in 2010 to 2011 even as the key Shanghai index was among the world's worst-performing indicators.
The resumption of IPO approvals on the mainland is expected to exacerbate the bearish sentiment in a market that has already lost 4.8 per cent this year.
"The news is expected to further weigh down the A-share market though investors have been psychologically prepared for new share offerings," said Dazhong Insurance fund manager Wu Kan.
"Pent-up demand has been high since the suspension."
In Hong Kong, new share offerings raised a total US$4.6 billion last month, up 38 per cent from a year ago.
"Some companies will choose the mainland market for listing as they might think investor appetite and liquidity there may be better than in Hong Kong," said Frank Tang, chief executive of FountainVest Partners.
"But I don't think Hong Kong should be worried."
David Chin, head of UBS' Asia investment banking business, said the CSRC's decision would have minimal impact on market liquidity and sentiment in Hong Kong.
Small-cap companies may prefer listing on the mainland once the regulator restarts vetting IPO applications.
Mainland investors normally speculate heavily on small caps, betting on quick returns from wild price swings.
But in Hong Kong, investors are wary of small-cap stocks, particularly of mainland companies, following a raft of corporate scandals last year that damaged the reputation of Hong Kong-listed mainland start-ups.
Additional reporting by Ray Chan