Investors shunning mainland stocks could derail China’s biggest IPO since 2015

An investor sits in front of a board showing stock information at a brokerage office in Beijing, China, December 7, 2018. REUTERS/Thomas Peter

What’s poised to be China’s biggest listing since 2015 faces a headwind: investors are losing interest in mainland stocks.

State-owned lender Postal Savings Bank of China Co. is looking to raise around 28.4 billion yuan ($4 billion) in what would be the largest onshore share sale since 2015. It follows a flurry of initial public offerings that have faded quickly, amid slumping trading activity and a steady decline in new stock accounts that signals a lack of exuberance in China’s market.

It contrasts with the start of the year when turnover surged beyond 1 trillion yuan for the first time in years and multiple gauges roared into bull markets. Such confidence has since been eroded by the twists and turns of U.S.-China trade negotiations, a slowing economy and weakness in corporate earnings.

Lackluster debuts on Shanghai’s new Star market haven’t helped, with the board losing its shineamid a flood of issuance. Of the 37 stocks listed in the A-share market since Oct. 29, seven have dropped below their IPO price, according to data compiled by Bloomberg.

“Investors are leaving the stock market, because the market is lacking in money-making opportunities,” said Jiang Liangqing, a money manager at Ruisen Capital Management in Beijing. “It has become more common for new listings to flop.”

Turnover on mainland exchanges was down 71% from March’s high as of Wednesday. The Shanghai Composite hasn’t moved by more than 2% since August, while 30-day volatility is at its lowest since early 2018. The number of new stock trading accounts dropped 18% in October from September, the third monthly decline in a row.

One of China’s largest state-owned lenders, Postal Bank would potentially be the world’s fourth-largest listing this year behind Alibaba Group Holding Ltd.’s $11 billion share sale this month, Uber Technologies Inc.’s $8.1 billion IPO in May and that of Budweiser Brewing Co. in September. Subscription for Postal Bank’s Shanghai listing opens Thursday, according to a filing to the stock exchange.

“Postal Bank, as a large-cap stock, will face pressure under the current market conditions,” said Yang Delong, chief economist at First Seafront Fund. “Market turnover is low and liquidity is not abundant. There is a chance that some retail investors will want to back out from the subscription.”

China’s wall of maturing debt to tighten liquidity conditions

For years, stock debuts in China were a slam-dunk trade, valued at no more than 23 times earnings and typically popping by 44% on their first day. Curbs on supply and valuations saw mainland IPOs bring more than 400%-a-month returns. That all changed this year when regulators eased restrictions for Star market stocks, though those changes have yet to be rolled out to other venues.

On Tuesday, China Zheshang Bank Co. made the worst mainland trading debut since Haixin Foods Co. in 2012, according to data compiled by Bloomberg. The Zhejiang-based lender rose a mere 0.6% on Shanghai’s main board, before tumbling nearly 5% on its second day of trading. It was 0.4% lower on Thursday morning, while the Shanghai Composite Index was flat as of 10:09 a.m. local time.

“The stock market is lacking any catalysts, so investors believe it will be range-bound for the foreseeable future,” said Ge Shoujing, a Beijing-based senior analyst at the Reality Institute of Advanced Finance.

“Institutional investors are locking up their profits ahead of the year’s end,” he said. “If the stock market isn’t falling, then that’s good enough.”

China’s stocks are sitting on outsize gains this year, as with equity markets around the world. The Shanghai Composite Index is up more than 16%.

Bloomberg

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.