China’s stockmarket performance has been as breakneck as the country’s economic growth recently, with the Shanghai Composite Index rising 40% since the start of the year. The surge was spurred by last August’s market reforms, which are enabling companies to convert a huge overhang of non-tradeable shares into ordinary shares that can be much more easily sold, says The Economist. The result? A share-price boom and a flood of initial public offerings (IPOs).
Since a year-long freeze on new issues was lifted in June, 12 companies have come to market, raising RMB41.5bn (£2.7bn). Another nine are currently floating and a further RMB70bn-worth of stock could reach the market in the next year, reports The Times. They include the proposed £1.37bn IPO of the Industrial and Commercial Bank of China, which has been touted as the world’s largest-ever new issue.
But the boom could soon be over. There are signs that, as elsewhere in the world, the appetite for new issues is waning, says John Christy on Breakingviews.com. Air China, the country’s flagship airline, has already been forced to scale back its IPO. It’s now aiming to raise $576m, down from $1bn previously. Concerned about a potential glut of shares, regulators are considering reimposing the IPO freeze to calm the market, says the South China Morning Post. But this may not be enough to prevent market weakness for the rest of the year.
With too many shares chasing too few buyers, don’t expect exceptional performance in the domestic market from now on, says Charlie Awdry of Gartmore China Opportunities, in The Times. Merrill Lynch analyst Michael Hartnett sees the “hawkish” central bank as another risk and suggests investors hold off until tightening is complete.