IPO Resumption Impact on Markets Seen Limited

飞雪寒冰

The resumption of initial public offerings in China is unlikely to end the recent market uptrend as new listings will not be the sole factor in determining the domestic markets' performance, analysts said.

IPOs are widely expected to be resumed after an eight month suspension, with the trigger being the China Securities Regulatory Commission's issuance of revised rules on share listings that took effect on June 11.  

But there were concerns that new IPOs will resurrect an old market nemesis – share supply. Large amounts of shares coming onto the market at once, tying down investor funds and depressing prices of other stocks, were a drag on the market in early 2008, before the global economic meltdown delivered a killing blow to stocks late last year.  

Gao Zhanjun, a managing director at Citic Securities Co. (SSE: 600030), said an IPO resumption will indeed result in fluctuations in the market in the near term due to its influence on investor psychology, but IPOs will not be the sole influence as there are many other important factors at play including overall economic trends, corporate profits and government policies.

"We should judge market trends on a comprehensive basis, rather than being confined to IPOs," Gao said.

The benchmark Shanghai Composite Index has gained more than 50 percent since the beginning of the year, mainly propped up by the government's 4 trillion yuan stimulus package.

飞雪寒冰

According to Xue Lan, Citigroup China research director, history has shown that IPOs will not halt a bullish market, and the reverse is equally true.

In 2007, China's securities regulator pumped large volumes of new shares onto the market, but the benchmark index continued to rise, peaking at 6,124 points in October that year. On the other hand, the market continued to plunge late last year even after IPO approvals were suspended in September.

"It is the market that may affect an IPO's progress, rather than IPOs influencing the market trend," Xue said.

She added that the resumption of IPOs will instead attract more capital to a market already on an upswing.

The timing of IPOs should be decided by the issuers, who should make their judgment based on market conditions, said Citigroup's Xue.

Zhang Zhixiong, chief editor of Value Magazine, a securities industry publication, agreed that the regulator should not control the timing of listings to avoid potential oversupply or a further suspension of share issues in the future.

"It's the loopholes in the IPO system rather than the resumption itself that brings potential downside risk to the A-share market," Zhang said.