China is accelerating a much-delayed shakeup of its market for initial public offerings, which may lead to explosive demand for new stocks.
Companies can apply for IPOs on Shenzhen’s ChiNext board under newly relaxed rules from Monday, the China Securities Regulatory Commission said on Friday, which also announced a streamlined process for applications. Daily moves for the first five days of trading will no longer be subject to price limits, according to a separate statement by the Shenzhen exchange. The ChiNext index rose as much as 2.3% before paring gains to close 0.6% higher on Monday.
Perhaps more dramatically, the bourse will double daily price limits for all stocks on the $1 trillion ChiNext board to 20% once the first stock lists under the new system, echoing similar moves by a much smaller startup board in Shanghai. Previously all listed stocks in China were subject to 10% daily moves, with the exception of around debuts.
“The scope, strength and speed of the new reforms exceed expectations,” said Ma Cheng, chairman at Shenzhen Juze Investment Management Co. He expects a surge of funds into the IPO market in the second half. “It’s a significant step for China’s capital market that is going to boost trading activity.”
According to rules published by the CSRC on Friday, the Shenzhen stock exchange will review each listing application before submitting them to the regulator. The CSRC will then have up to 20 working days to approve the application, the statement says.
Such easing of rules may lead to improved returns for IPOs, if the experience of Shanghai’s Star board is anything to go by. This year, more than 80 Chinese IPOs are up an average 132% in their first month of trading, the best returns on a weighted-average basis since 2017, according to data compiled by Bloomberg. Many of these listed on the Star board.
The move also comes at a time when growing tensions between Beijing and Washington are prompting increasing numbers U.S.-listed Chinese firms to consider alternative venues to sell shares. So far Hong Kong is become a favored destination for secondary listings, with JD.com Inc. being the latest to raise money there.
The ChiNext, which was the epicenter of a 2015 bubble in mainland shares, entered a bull market last week after gaining more than 20% from its march low.
©2020 Bloomberg L.P.
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