Why China is restricting IPOs to drive up US$9.7 trillion onshore stock market
- The Shanghai Composite has risen by an average of 16 per cent during the previous nine suspensions of IPOs carried out by the regulator, according to China Fortune Securities
- Curbs ‘a very positive signal delivered to the market’, analyst says
Stocks in China tend to perform well after administrative intervention in the primary market, if history is any guide, analysts said.
The decrease in new offerings might stem a decline spurred by a dire outlook for the economy and a glut of stocks in China’s US$9.7 trillion onshore stock market.
“The current market environment is similar to what happened before, and tightening IPOs and refinancing can stabilise sentiment to curb capital outflows,” said Yang Zhengwang, an analyst at Northeast Securities. “The implementation is definitely getting under way and that’s a very positive signal delivered to the market. There’s no need to worry too much about liquidity.”
The Shanghai Composite Index rose by an average of 16 per cent during the previous nine suspensions of IPOs carried out by the regulator to bolster sentiment, with money not leaving existing stocks for new listings, according to China Fortune Securities.
The Chinese benchmark has risen 2.4 per cent since the CSRC’s announcement about curbing stock supply. The gauge has gained 1.6 per cent this year, trailing other key markets in Asia such as Japan and South Korea, where benchmarks have gained at least 10 per cent.