Sentiment seen stabilizing after mid-year turmoil
A restart of IPOs will not cause major fluctuations in the mainland stock markets, experts said Sunday, after the country's securities watchdog said that it is about to resume IPOs following a four-month freeze.
Ten firms that had already received approvals from the authorities will restart the IPO process in about two weeks, as they still need time to go through some legal procedures, the China Securities Regulatory Commission (CSRC) said in a statement on Friday.
Another 18 firms, whose IPO plans had also been approved, will be able to launch their IPOs before the end of the year, the CSRC said, adding that the approval process for new IPOs will also be resumed.
The market has entered into a phase of self-correction, and resuming IPOs could "help inject vitality into the market," the CSRC said in the statement.
China's mainland stock markets have seen major turbulence since mid-June. The benchmark Shanghai Composite Index reached a peak of 5,166 points on June 12, but in the following two months the index tumbled around 40 percent to some 3,000 points.
To stabilize the market, the government launched a slew of rescue measures.
New IPOs were halted in early July, as new IPOs tend to pull a huge amount of money from existing stocks - newly listed shares are allowed to rise by 44 percent on their debut, compared with a 10 percent daily limit for existing shares, which is why IPOs are usually heavily oversubscribed, experts said.
Other measures adopted amid the stock rout included campaigns to crack down on malicious short-selling activities and orders for centrally administered State-owned enterprises (SOEs) not to sell shares in their listed units.
Boosted by the government's support measures, the stock markets started to pick up in October. In the past week alone, the Shanghai Composite Index rose by over 6 percent to close at 3,590.03 points on Friday.
But the resumption of IPOs will not disturb the upward trend in the stock market, experts said. "The restart will not dampen the current bull run," Li Daxiao, chief economist at Shenzhen-based Yingda Securities, told the Global Times Sunday, adding that the restart shows the authorities' confidence in the stock market.
Dong Dengxin, a finance professor at Wuhan University of Science and Technology, also told the Global Times Sunday that the IPO restart will not cause any major fluctuations as the current market sentiment has stabilized.
The CSRC also came up with measures to avoid excessive diversion of funds toward the new IPOs. It said in the Friday statement that it is removing the old system that required subscribers to pay for a new share in advance. Under the new system, investors only need to pay after they receive an allotment in the lottery system.
Along with the announcement of the IPO resumption, the CSRC also announced several reform measures for new listings. In the Friday statement, it emphasized the importance of information disclosure and also said that it would strengthen supervision of IPO underwriters. The CSRC said that these reform measures also represent a step toward the long-awaited new IPO registration system.
The current IPO system is approval-based, which means companies need to go through several rounds of reviews before they are allowed to get a listing, and this process usually takes a very long time.
A registration-based IPO system would be more efficient and firms will only need to be qualified to register with the securities authorities before their listing. As the process is more streamlined, compliance in information disclosure will be crucial, experts said.
"The new registration-based IPO system will free the securities authorities from the work of IPO approvals, so that they can focus more on supervision and curbing irregularities in the stock market," Dong noted.
