Why Chinese IPOs skyrocketed in first half as global markets declined？
While the global initial public offerings (IPOs) markets slowed in the first half owing to geopolitical and economic uncertainties, mainland China saw a surge in the number of IPOs.
According to statistics from Dealogic, the total amount raised via IPOs in mainland China this year has reached roughly $35 billion, dwarfing Wall Street’s $16 billion. Even more astounding is the fact that A-shares provided roughly half of the IPO revenues over the time period.
The tightening of U.S. monetary policy has little effect on Chinese markets
China’s financial sector is decreasing its dependence on globalization. “While the U.S. stock market technically stepped into a bear market, markets in mainland China, Hong Kong, and Russia fared rather well, and still recorded positive returns in May,” Hong Hao, a prominent market analyst in China, wrote on Twitter. “In stark contrast to the strong market performance, Russia is still at war, and China is struggling against economic headwinds, most notably weak consumer demand.”
Hong was the Managing Director and Head of the Research Department of the Bank of Communications International, a subsidiary of the state-owned Bank of Communications.
He explained this phenomenon as, with the reshaping of the global pattern, the price performance of eastern and western assets began to diverge. “The structure of international interests has started to reshape as the nexus between production and consumption shifts, and the Eastern and Western camps have gradually formed. The most powerful evidence of financial deglobalization will be “de-dollar centralization,” Hong wrote.
Following the Trump administration’s trade war against China in 2018 and the deglobalization movement spurred by the COVID-19 outbreak in 2020, the link between China’s onshore and offshore markets and U.S. equities has begun to weaken significantly.
In Hong’s view, there is a growing correlation between the Vietnamese stock market and the American stock market, which may be due to the Southeast Asian nation’s increased engagement in the global supply chain.
Also, China’s stock market appears to be rather steady this year since downside risks have been greatly released during the previous year. Following last year’s extensive crackdown on internet platforms, online learning, as well as real estate, the stock market was in a panic mode —even while global markets have risen on the back of easy monetary policy, Chinese equities have declined substantially over the last year.
As a result, whereas major markets across the world have been negatively affected by America’s tightening monetary policy, China has been spared, creating a reasonably optimistic outlook for IPOs.
Government support from policy-making to execution contributed to the rise in IPOs
According to bankers cited by the Financial Times, Beijing’s quest for “technological self-reliance” has fueled China’s listing spree. Solar and wind energy, semiconductors, and other types of high-tech manufacturing have been prioritized since they are vital to economic development and competitiveness in the West.
Policymakers’ push for share offers by companies in advanced technologies has prompted companies to pursue listings with higher valuations amid the market recovery, so they can raise more funds to expand production and capture more market share, according to the report.
During the first half, Shanghai’s science and technology-focused STAR Market and Shenzhen’s tech-driven ChiNext Market continued to demonstrate their prominence in the A-share market by having 7 of the 10 largest A-share IPOs.
JinkoSolar generated the largest IPO on the STAR market this year, raising over $1.6 billion. In January 2022, the Chinese solar giant that went public on the New York Stock Exchange in 2010 conducted a secondary sale on the STAR Market.
On the STAR Market, semiconductor-related companies have raised almost $6.6 billion so far this year. Almost 80% of the funds raised by IPOs in the first half originated through STAR Market and ChiNext Market.
With 856 participants still waiting in the IPO pipeline, it’s likely that the STAR Market and ChiNext Market will continue to be key drivers for the A-share IPO market for the rest of the year, consulting firm KPMG forecasted.
In addition to providing policy support, the government is exerting considerable effort to guarantee the IPO work. Due to the resurgence of COVID-19, Shanghai, the financial hub of China, was under a massive lockdown from the end of March to the end of May. During the period, the China Securities Regulatory Commission stationed personnel at Shanghai’s stock exchange: during the day they cross-examined listing applicants by videoconference before signing off on share sales, and at night they slept on cots and air mattresses, according to the Financial Times.
Even if A-shares performed well in the first half, the second half remains fraught with uncertainty. The country’s 5.5% economic growth target for 2022 has been disrupted by a slew of noises, including the COVID-19 lockdown, which severely restricts the liquidity, employment, income, and confidence of Chinese households, as well as new yuan loans with muted demand, a frozen housing market, and other factors.
On May 26, UBS lowered its forecast for China’s GDP growth to 3% from 4.2% previously, while JPMorgan lowered its forecast to 3.7% from 4.3%.