Has China’s IPO bonanza fizzled out amid oversupply, subdued trading?
- Luoyang Jianlong closed below its offer price last week to become the worst debuting stock since 2012
- Postal Savings Bank’s shares might fall below their IPO price in Shanghai, Jingxi Investment says
Initial public offerings no longer promise spectacular profits for mainland Chinese investors, with days of 44 per cent gains in some instances in first trading sessions fast becoming a thing of the past.
Returns from a slew of companies debuting on mainland exchanges have been disappointing. Shares in Jiangsu Bioperfectus Technologies, a biotechnology company, for instance, rose only 17 per cent on their debut on the Science and Technology Innovation Board, or Star Market, on Thursday, missing expectations. Its IPO was floated for a multiple of 49 times against an industry average of 34 times.
Luoyang Jianlong Micro-Nano New Materials, listed on the Star Market, closed 2.2 per cent lower on its first trading day on Wednesday, making its trading debut the worst in seven years. About 16 per cent of companies trading on China’s new technology board are currently trading below their IPO prices.
Hangzhou-based China Zheshang Bank rose less than 1 per cent on its debut in Shanghai last week and dropped below its IPO price the following day.
New offerings are no longer risk-free bets that guarantee profits, as regulators increase supply by approving more listings, and test a registration-based system that prices new shares on the basis of market demand. Interest among traders has also declined, as price swings fall to their lowest level in 22 months in the absence of trading catalysts.
“There are too many IPOs. Some are of good quality and some are not,” said Wang Zheng, chief investment officer at Jingxi Investment Management in Shanghai. “We need to be selective while buying IPOs. The days are gone when as long as it’s an IPO, it will be chased.”