China's main stock exchange in Shanghai is up 34% on the year in spite of a 9.5% drop since it peaked mid-July. There is no question that current listings and future offerings are improving in quality and thus, the thinking is there will be more stability and higher share prices extending over the long-run -- and potentially even more upside this year although high valuations may limit the extent of further gains. Somewhat ironically, it is these same new blue chip listings that have investors pulling money out of already listed shares in order to take part in IPOs. However, with the improved quality comes the possibility that the number of market participants (including institutional investors) and amount of money allocated to stocks will increase drastically.
"Chinese households had about $1.94 trillion in bank savings at the end of June, several times the $540 billion market capitalization of the local-currency Class A share markets."
Significant upcoming new listings include: Air China (Hong Kong: 0753), which is already listed in Hong Kong but will be selling shares domestically -- it has actually had to scale back its offering; Industrial & Commercial Bank of China (Hong Kong: 0349), the nation's largest lender by assets; and Datang International Power Generation (Hong Kong: 0991).
Comment: The decision by China's securities regulators to ban IPOs for one year until this past May and their efforts to supply the market with higher quality listings looks as if it will payoff increasingly more with time. The article mentions that over 90% of delistings and financially troubled stocks labeled as “special treatment” or ST stocks were listed before 2000. This is much more of a rarity for post-2000 listings. There are some valuation concerns in China but it seems to me that more listings in combination with an increase in market participants will develop into the “virtuous cycle” a Chinese equities analyst that was quoted mentioning in the article. With mainland Chinese investors still mostly limited in their ability to invest overseas, domestic listings could be further boosted by new money to the market. And other promising news is China's securities regulators just gave QFII licenses to GE Asset Management Co., an investment fund of Stanford University, and United Overseas Bank of Singapore. Reuters reports:
"More than 40 foreign financial institutions have permission to invest over $7 billion in China's securities markets under the scheme, which gives them access to the country's A-share and bond markets."
Even though the $7 billion quoted above by Reuters only amounts to about 1% of the Shanghai exchange's listed firms' market cap, the newly issued QFII licenses are another step in the right direction.
Hong Kong’s Hang Seng Index by the way hit a six-year high on Wednesday. For its sake it hopes a global rising interest rate environment won’t dampen investors’ spirits.