Business / Markets

Mainland initial offerings flourish in splendid isolation

By Bloomberg in Shanghai (China Daily) Updated: 2014-06-24 07:07

Chinese investors turn to public floats amid falling returns in property, precious metals, virtual currency

Chen Yifeng, a 36-year-old accountant in Shanghai, says he's found China's last sure bet.

It's not the property market, where prices have started falling from record highs, or gold, which left him nursing two years of losses. Returns from trust products are too low, he says, and bitcoin is too risky after the virtual currency tumbled 48 percent from its December high through last week.

For Chen's 50,000 yuan ($8,033) of investable cash, only initial public offerings will do. Chinese IPOs have jumped an average 43 percent in their trading debuts this year, the most worldwide, and have since extended those gains to 85 percent. Regulators have restarted the market after a four-month halt in new deals, with at least nine companies marketing their shares to investors last week.

"This is probably the only good investment channel left in China," Chen, who plans to use borrowed money to amplify his bets, said in a June 16 phone interview.

IPOs have become a bastion for Chinese speculators who watched many of their favorite wagers turn sour this year amid slowing credit growth, a Communist Party campaign against lavish spending and forecasts for the weakest economic expansion since 1990.

Chinese home prices fell for the first time in almost two years in May, gold has tumbled 31 percent from its 2011 high through last week and the yuan slumped 2.8 percent versus the dollar this year. New loans by Chinese trusts, which get funding from individual investors, sank to a two-year low last month.

In Macao, the top destination for mainland gamblers, casino revenue growth is slowing as authorities tighten currency controls. The Liv-ex 100 Fine Wine Index has plunged 32 percent from its 2011 high as China, the biggest importer of Bordeaux wines three years ago, cracked down on official gift giving.

IPOs avoided the downturn in part because China's securities regulator has pressured companies to price the offerings at below-average valuations in an effort to protect small investors. The benchmark Shanghai Composite Index dropped 4.2 percent this year through last week, extending its five-year retreat to 30 percent, as trading volumes slumped. The gauge slid 0.1 percent at the close on Monday.

Feitian Technologies Co, a Beijing-based maker of digital security devices, priced its shares on June 17 at 16.6 times reported earnings, less than the industry average of 52 times, according to its prospectus. Shandong Longda Meat Foodstuff Co, a pork producer, and Wuxi Xuelang Environmental Technology Co, which manufactures gas purification systems, also priced shares at valuations below the average level of peers.

About 100 Chinese companies will sell shares in mainland IPOs by year-end, China Securities Regulatory Commission Chairman Xiao Gang said on May 19.

Mainland initial offerings flourish in splendid isolation

Mainland initial offerings flourish in splendid isolation

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