New IPOs to resume in May
By Chen Hong (China Business Weekly)
Updated: 2004-04-13 09:40

Backed by improved market sentiment and abundant funds, China's stock markets will keep rallying despite the expected resumption of new listings in Shenzhen Stock Exchange, said local brokerages.

"We have learned that the fund companies alone have raised at least 85.2 billion yuan (US$10.3 billion) in the first quarter; the new market is going to attract part of the capital but it could still support the upward momentum of the main-board markets," said a senior investment manager with local brokerage China Eagles Securities, who declined to reveal his name.

Although the Shenzhen Stock Exchange (SZSE) kept silent over the timetable, the financial service sector widely believe the long-awaited market for small and medium-sized enterprises (SMEs) traded on the Shenzhen market will start operating after China's week-long holiday in the first week of May.

Meanwhile, a public speech made by Cheng Siwei, vice-chairman of the Standing Committee of the National People's Congress (NPC) and an active advocate for the new market, reaffirmed the market speculation. He told a venture capital forum in Shenzhen early April that he had started to count the days until SZSE's IPO (initial public offering) suspension would end.

The launch of the market for SMEs, which provides a platform for those with issue size capped at 50 million yuan (US$6 million), will differentiate Shenzhen from the country's other stock market in Shanghai, which is mainly for large, State-owned companies.

Ding Chang, an analyst with the research department of the local brokerage United Securities, said it is better timing for the launch of the market for SMEs.

"The markets in both Shanghai and Shenzhen have rallied for nearly five months and investors have apparently improved confidence in the market reflected by the active transactions," Ding told China Business Weekly.

The benchmark Shanghai composite index, grouping hard-currency B shares and yuan-denominated A shares, climbed roughly 30 per cent from around 1,300 points last November to 1,770 points last Thursday.

The official figures show that the average daily transaction of the two stock markets, including those from hard-currency B shares, climbed nearly 86 per cent year-on-year to 27.60 billion yuan (US$3.30 billion) in January.

The daily transaction surged to about 35.60 billion yuan (US$4.30 billion) in February, up 230 per cent from a year ago, the figure from China Securities Regulatory Commission showed.

It stabilized at 33.20 billion yuan (US$4 billion) in March, but also displayed an amazing growth from a year ago which recorded some 6.20 billion yuan (US$747 million) transaction each trading day, according to statistics from China Eagle Securities. The official figure is not available yet.

"Individual investors are expected to put some resources in the new market encouraged by the improved market sentiment while institutional investors, with adequate capital, will also make a good start for the market for SMEs," said Ding.

The SZSE was told by the central government to stop hosting IPOs in late 2000 and surrendered the right to the Shanghai Stock Exchange, so that it could be reborn as a Chinese equivalent to NASDAQ.

But following the bursting of the Internet bubble and China's increasing interest in protecting the nation's financial market led to debates as to whether China really needs a stock market at all for its technology startups.

The indecision has left SZSE in limbo for three years, which also greatly disappointed brokerages and investment banks who had made every preparation for the launch of the so-called second board for technological startups.

"The major sponsors have some 100 IPO projects each for the second board in 2000, but the launch of the board was delayed again and again," said the manager with China Eagle.

But the top decision-makers conveyed a more clear message this year on the establishment of the new market, which will be specialized in serving SMEs rather than the only technological startups, as Shenzhen's original plan was three years ago.

There have been reports that the new market will have relatively independent functions such as having its own index and trading system and information disclosure system but still apply the existing listing rules and threshold.

However, the authorities will lower the accession criteria for the SMEs later, depending on the development of the market, so that it could be much easier to raise funds from the market.

Finally, it will become a separate NASDAQ-like market.

The first batch to be listed in the new market, about 20 companies, will be selected from 64 companies waiting in the front part of the long queue, of which 44 companies plan market capitalization of under 50 million yuan (US$6 million), said insiders.

Some of the qualified companies are very competitive and have good market potential. For example, Zoje Sewing Machine Co Ltd, based in East China's Zhejiang Province, recorded 428 million yuan (US$51.60 million) sales in 2002 and paid about 60 million yuan (US$7.20 million) tax.