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News International MAINLAND CHINA’S IPO MARKET DOWN SIGNIFICA
PwC hosted its “2014 Initial Public Offering (IPO) Market Interim Review and Outlook” press briefing this month, revealing the key figures for IPO activity on the Shanghai and Shenzhen stock exchanges. Due to the impact of a changing economy and the regulatory climate, and a number of other factors, the performance of the IPO market in the first half of 2014 fell considerably compared to the same period in 2012. There were a total of 52 IPOs with RMB 35.2 billion funds raised in the first six months of 2014, down 50% and 55% respectively,
compared to the same period in 2012.
Of the total of 52 IPOs, the Shanghai Main Board attracted 7 IPOs (a decrease of nearly 59% compared to the same period in 2012)
raising RMB 12.2 billion in funds (a decrease of nearly 58%). The Shenzhen SME Board hosted 19 IPOs (a decrease of nearly 49%), with funds raised reaching RMB 10.1 billion (a decrease of nearly 58%). ChiNext hosted 26 IPOs (a decrease of 49%) and RMB 12.9 billion funds were raised (a decrease of nearly 48%). The data also indicated that the average volume of funds raised, RMB 680 million in the first half of 2014, is a historic low for the past few years.
“Over the past two years, IPO activity in mainland China has remained at a low level for a variety of reasons,” says Frank Lyn, PwC China & Hong Kong Markets Leader. “These include the global and domestic economies, market
developments and investor behaviour.
However, we noticed that the uncertain regulatory climate affected companies’ strategic planning, as well as the development of the capital markets. Currently, China’s economy is in a crucial period of transition in terms of both investment and consumption.
How
to fully utilise the capital markets so they can better to
serve businesses and
economic development is a big challenge for regulators. The market
hopes that
changes in policy and regulation could be more forward-looking and timely.”
Looking at IPO activity by sector, in the first half of 2014 the consumer goods and services sector together with the industrial products sector dominated new listings on the Shanghai Main Board and the Shenzhen SME
Board, accounting for 70% and 100%, respectively, of the total. Meanwhile, the information technology and telecommunications sector was active on ChiNext, accounting for 69% of the total number of new listings. These three sectors dominated IPOs in the Shanghai and Shenzhen stock exchanges for the first half of 2014.
than the first half, with the total number of IPOs potentially reaching 150 and funds raised totalling between RMB 100 billion and 150 billion,” says Jean Sun, PwC China Assurance Partner. “Enterprises listing in 2014 will be dominated by small and medium sized companies, including many from the industrial products, information technology,
“We expect there to be more IPO activity in the second half of the year
financial services and consumer products sectors. In addition, the Shanghai-
FINANCE EXPERT SOUNDS ALARM ON NEW GLOBAL
Arturo Bris, Professor of Finance at IMD Business School and Director of the World Competitiveness Center, predicts that a global economic crisis is likely and that not enough action is being taken to avoid it. Based on statistics, he said the world could expect a financial crisis as soon as April 2015, ending in March 2016. Bris said the cause of crisis will come from eight possible scenarios:
A stock market bubble: In the last year,
stock
markets have performed unrealistically well and at some point the situation will explode. In 2014
analysts were disappointed in the first quarter because earnings were not in line with market expectations. This means that if markets were to revert to a reasonable level with regards to earnings, there will be a stock market drop of between 30-35%.
Banking in China: A severe crisis could be driven by growing Chinese shadow banking, a system which consists of loans mainly to government institutions whose performance is not well monitored and not open to competition. If this system collapses, it will negatively affect the global economy.
Energy crisis: The United States, as the world’s largest producer of gas, could cause an energy crisis. If the US begins exporting to the rest of the world, Russia might feel threatened, causing a geopolitical storm. The US would have control over energy prices and would exert influence over countries like the UK, India and Japan.
Another real estate bubble: There is risk of a property bubble forming in countries like Brazil, China, Canada or Germany. Prices are going up because availability of credit is huge and buyers are pushing prices up without
realizing that they do not correspond to fundamental values.
Ratings and bankruptcy: ‘BBB as the new AA’: Companies currently have too much debt and the new norm is to have a BBB rating. In the US there are only three companies left with an AAA rating: ExxonMobil, Microsoft and Johnson & Johnson. If ratings are an indicator of bankruptcy, there will be bankruptcies across the board. If interest rates increased by 2%, half of the corporate sector would be wiped out.
War and conflict: Almost
everywhere, except in parts of Europe and the US, there is increasing geopolitical tension.
Events like the
current crisis in the Crimea could trigger a market crash, even if there is no war.
Increasing poverty: Overall world poverty has increased and whenever the poor become poorer we can expect a social conflict. The crusade against income inequality could also further hinder innovation and growth by reducing the benefits of innovation, threatening the economy.
Cash and hyperinflation: The surplus of cash that central