Shares in a number of Chinese companies rose more than 100 percent on Monday as the first batch of IPOs under a new, streamlined listing regime made their debut in Shanghai and Shenzhen.
Among the top 10 launches, top gainers included Shenzhen CECport Technologies, an electronics retailer, whose shares soared as much as 239 percent, and Shaanxi Energy Investment, a state-owned electricity conglomerate that raised Rmb7.2 billion ($1.1 billion) in its IPO . USD) and its shares rose by up to 84 percent.
However, financial experts said the massive gains recorded by the relistings pointed to the need for broader reforms of China’s equity raising rules.
“The fact that you have these ridiculous jumps on day one clearly means companies are undersold,” said Fraser Howie, an independent analyst and expert on China’s financial system. “This is still a process where it’s huge [state] oversight and control.”
The new rules aim to streamline IPOs by allowing Chinese companies to debut on the main stock exchanges of the Shanghai and Shenzhen Stock Exchanges without first obtaining regulatory approval. They also remove a limit that had capped the IPO price of a company’s shares at 23 times earnings per share, and remove a 44 percent cap on day-one earnings, although daily movements after the first five Sessions are capped at 10 percent.
Recent listing reforms come as China is already by far the world’s most active market for IPO fundraising, with more than $14.5 billion, according to Dealogic data.
Yi Huiman, chairman of the China Securities Regulatory Commission, said at a listing ceremony Monday morning that the reforms represent “wide and fundamental changes” and that the first batch of IPOs is “another important milestone in the reform and development of China’s capital markets.” .
However, reforms to remove regulatory approvals and share price caps on the main boards of mainland stock exchanges – collectively known as the “registration-based listing system” – have been rolled out since 2019 on China’s tech-focused boards, Star Market in Shanghai and ChiNext in Shenzhen.
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A surge in activity in both of these bodies in recent years reflects pressure from policymakers to channel IPO proceeds into sectors seen as vital to national security and economic growth. On Monday, Shanghai Mayor Gong Zheng said the new regulatory regime will “powerfully push the Chinese stock market” to allocate better capital to priority sectors, as the boards of Star and ChiNext have already done.
Despite the removal of a formal requirement to obtain a listing from the CSRC, local brokers say regulators still exercise strong influence over which companies are granted access to China’s capital markets. Earlier this year, the securities regulator told bankers it had identified several “red light” industries that should not be allowed to raise equity at its Shanghai and Shenzhen headquarters.
Analysts said triple-digit gains at companies listed on Monday are unlikely to be sustainable.
“It’s the same trading pattern as the Shanghai launch of Star and ChiNext,” said Zhang Qi, an analyst at Chinese brokerage firm Haitong Securities. Zhang said traders bid shares of the new listings on speculation that the companies would be backed by policymakers and that they would “return to more rational levels after their debut.”
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