The following is our China correspondent Andrew van Buren's translation of an article which appeared in Thursday's (July 16) edition of Shanghai Securities News:
Nationwide daily circulation of 650,000-700,000.
ONE OF THE banes of capital market research in China is the propensity to base too much analysis and forecasting on inexact inputs like sentiment, insufficient polling and wishful thinking rather than more concrete study via a more formulaic approach.
But this will undoubtedly change over time as the country’s stock markets mature.
Chinese stocks have been on fire of late, with daily trading turnover in Shanghai currently at four times the past five-year average.
It’s so hot that the Shanghai Composite Index has risen 50% since February, and valuations across the board in domestic bourses have increased by over 60%. Among 90 markets under Bloomberg’s global coverage, China’s ranks first in growth over this period.
Two small-cap IPOs were recently launched with great success: pharmaceutical firm Guilin Sanjin and cable and transmission wire maker Wanma Dianshao -- with both averaging more than 30% oversubscription during their debut.
On their first day on the big board, share turnover in these two averaged over 80%. Most buyers of new shares were happy to cash in as soon as any profit was to be made.
But at the 3.00 pm market close that day, a second category of new shareholders was ready to cash in their chips, and pay for an unfinished meal, as it were – which exemplified that the two groups were not all that different and were swayed by sentiment.
After making a furtive poke with a walking stick in the dark, market regulators decided to go down the road of enhancing capital injections into the bourses.
On July 6, Shanghai IPOs were again on the table -- this time with Chengyu Highway, which applied for an A-share listing.
This suggested that there might be a connection with First West Highway Construction and others like it, which was listed in Hong Kong for 12 years and then switched to an A-share listing.
Also, big-cap counter China Construction already has on July 10 gotten approval to launch an IPO, and this is no drop in the bucket as it is a 42.6 bln yuan operation.
Authorizing mega-cap IPOs has always been a useful card in China’s deck to regulate a potentially overheating capital market, by:
1. allowing a massive influx of capital into major enterprises
2. preventing massive influxes to other recipients at the same time
3. cooling turnover spikes and speculation with a sudden mega-cap IPO and the restraints on liquidity that places on potential trade in existing counters
Using a wider range of analytical tools to assess China’s markets and get a better idea of where they are headed is not necessarily anti-market. In fact, it can give a more measured, less emotive look at the bourses.
Oftentimes, investors and analysts alike put too much emphasis on the listings and then day-to-day performance of select blue chips when looking for market barometers, while neglecting a more cool-headed comprehensive assessment of the overall situation.
To bring about a more mature and measured market here, it would be good to take a page from noted experts in the field like Huang Yasheng and Liu Zun to bring about more stability – and sustainability – in China’s capital markets.
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