IPO listings soar post-break

Another 11 firms announced Monday that they had received approval from the securities regulator to launch IPOs, taking the number of new listings to 27 after a 13-month moratorium.

The IPO approvals, a move in response to the authorities' vow to reform the IPO mechanism from an administrative approval to a more market-driven registration system, however, sent the benchmark Shanghai Composite Index to a five-month low.

The newly approved companies, including the Beijing-based Ciming Health Checkup Management Group and Nsfocus Information Technology, will be listed on the Growth Enterprise Board and Small and Medium-sized Board in Shenzhen Stock Exchange.

Following the news of the new listings, the Shanghai Composite Index plunged 1.8 percent to 2,045.71 points and Shenzhen Component Index slumped by 2.61 percent to 7,818.46 points at market close on Monday. The figures are the lowest since August 2013 as investors fear the new share subscriptions will siphon off funds from existing stocks.

The China Securities Regulatory Commission (CSRC) said in a statement Monday that it will ensure a series of measures to underscore cash dividends sharing and stock buy-back plans if the share price falls below the net asset value, in order to stabilize the share price and protect the interests of small investors which dominate trading in A-share stocks.

"Investors will sell their current shares to subscribe to the new ones, which could cause a tumble in prices of existing stocks," Yuan Shan, a retail investor of 20 years experience, told the Global Times Monday.

The newly listed firms are generally believed to have better asset quality than those listed in the past. Approval of IPOs was suspended in November 2012 amid the authorities' efforts to clamp down on rampant financial fraud and restore investors' confidence in the equity market.

The slump in the stock market is due to the increasing supply of stocks and relatively tight liquidity in the market, Gui Haoming, securities market expert and director of Shenyin Wanguo Research Institute, told the Global Times on Monday.

China experienced a cash squeeze twice in the interbank market, in June 2013 and late December, which is still ongoing. This may cause tight liquidity as institutional investors are reluctant to increase investment in the markets.

The CSRC said in early December that it estimates 50 companies will be listed in January. The pace of the latest IPO approvals is reportedly the fastest ever.

As of Monday, 27 firms had announced they had gained approval for their IPOs since December 30, the day of IPO resumption after the moratorium, the longest in A-share history.

Eight of the 27 firms will issue new shares this week, and 18 next week.

More than 700 cash-starved firms are reportedly still in line for financing in the stock market with total fundraising estimated to be about 500 billion yuan ($82 billion).

The number of IPOs is expected to reach 300 in 2014, almost double that in 2012 before the IPO freeze, PricewaterhouseCoopers said in a report released on Thursday.

The downward stock performance also shows that investors' concerns are not fully addressed by the IPO reform, Xu Guangfu, a strategy analyst at Xiangcai Securities, told the Global Times.

"The punishment for financial fraud and misleading information from listed firms is not as tough as expected by the investors, and the high IPO price is not solved," Xu said.

In the past, some listed firms artificially inflated profits to boost share prices.

In terms of whether the financial authorities' measures go far enough to protect investors, Hu Yuyue, director of Securities & Futures Research Institute, Beijing Technology and Business University, said the market should reflect the Chinese economy's growth.

"The best way to protect investors' interests is to let investors make money on the stock market [in the short term]," he noted.

The regulator could have the institutional investors, including the social security fund, securities brokers as well as mutual funds to increase share holdings to boost the market, Hu said.

China's A-share market ranks third globally in terms of poor performance by falling 6.75 percent in 2013 from a year earlier, after Brazil and Turkey, despite a decent economic growth compared with other major economies.