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According to an Ernst & Young report, 20% of global public listings in this year’s first nine months took place on the Shanghai Stock Exchange. This incident made Shanghai the top market, adding 115 IPOs in Shenzhen and 99 in Hong Kong.
These and the more significant China stock exchanges accounted for 45% of global IPOs in the first three quarters of the year. It is according to a CNBC analysis of data from E.Y. Lufax Holding Ltd., one of China’s most extensive lending and investment companies, filed an initial public offering to go public in the U.S.
As businesses worldwide are waiting for the U.S. presidential election, which will have implications on the global economy, Chinese companies are still pursuing the U.S. market. The IPO comes right after 23 companies from mainland China went public in the U.S. in the first nine months of this year.
According to E.Y., this event accounted for half of the cross-border listings in the U.S. during that time. The lengthier the businesses wait before going public, the greater the risk they get. Ma said that it adds to a U.S. blacklist that scares away U.S. institutional investors and investment banks that run the global IPO process.
“The IPO rush (of the) last few months is a flight from uncertainty… No Chinese company, especially the tech startups, can say with certainty that they are spared (in) this US-China digital war.”
Winston Ma, former managing director and head of North America for China Investment Corporation (CIC)
On the other side of the Chinese IPO, trends are new regulations from Beijing that make it easier for companies to list.
“Because of Covid-19, the Chinese government also wants to help the economic recovery, and so the capital market is (a) way for companies to raise funds … without the direct support from the government.”
Terence Ho, more significant China IPO leader at E.Y.
Foreign investors are increasingly engrossed in China. Analysis from China Renaissance indicated that foreign funds held almost 8% of the available mainland A-shares for trading, higher than the recorded 2% five years ago. The A-shares are yuan-denominated stocks of Chinese companies included on mainland exchanges in Shenzhen and Shanghai.
“Global funds’ allocation in China is still not proportional to China’s economic size and the market cap of Chinese equities… This should lead to continued demand for asset allocation to Chinese equities over the long term.”
China Renaissance research team
Although it is the second-largest in the world by market capitalization, the mainland Chinese stock market is still far smaller than that of the U.S.
Jack Ma, Alibaba founder, said at a conference this past weekend, the Chinese financial system has yet to mature, and the problem is that it doesn’t allow for risk. Authorities have been trying to let market forces play a more significant role, while institutional investors considerably increased their shareholdings.
James Early, CEO of investment research firm Stansberry China, noted the relatively new Shanghai STAR board — on which Ant plans to list — helps Beijing build its credibility for being severe about capital market development. It can also be recalled that Nongfu Springs Founder was named as China’s richest man.
“The more regulators allow investors to take pain; there’s more trust in the market.”
James Early
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