MERCHANT bankers say they are confident H shares will continue to make up most of the new issues in Hong Kong this year. Last year, 50 new companies listed on the local bourse, raising more than $16.4 billion. Of those, nine H shares tapped more than $9.79 billion, which was 59.6 per cent of the total. Compared to the $23 billion generated from 62 new flotations in 1993, last year's initial public offerings (IPO) looked less robust, despite the listing in Hong Kong of 22 Chinese state-owned enterprises. H-share issues were expected to dominate the market's new listing activities, since Hong Kong had established itself as a safe fund-raising haven for Chinese enterprises, said Jimmy Chan, associate director of Barclay de Zoete Wedd. Merchant bankers blamed poor market sentiment for the lower number of IPOs last year. There was also speculation that new restrictions imposed by the stock exchange could drive away small companies. Lawrence Ang, director of Swiss Bank Corporation, said some state-owned enterprises from the second batch of H shares would have difficulty seeking a listing on the local bourse. 'Because of the credit-tightening policy adopted by the Chinese Government, many state-owned firms have encountered shrinking profits, which will reduce their attractiveness,' Mr Ang said. Last year, China's economic environment prevented some state-owned firms from going public as planned. Some of those listings would be postponed until the firms could show strong profit records to investors, he said. Against this background, the central government has given approval for several more enterprises to go public outside China. 'Highway construction and management enterprises, pharmaceutical firms, telecommunications equipment makers and automobile manufacturers are likely to overtake some of the second batch of H shares to seek listings in 1995,' Mr Ang said. Poor market sentiment, especially during the last quarter, was cited for the slump in share prices of some new H shares, such as Chengdu Telecom, Zhenhai Refinery and Harbin Power Equipment. Despite the support of mainland authorities, some H-share issues were even undersubscribed. The $200 million share issue by Oriental Metals, the subsidiary of China National Non-Ferrous Metals, was less than 60 per cent subscribed. Florens Group, the container arm of mainland shipping giant COSCO, was also one of the victims of weak market performance.