The inner regard of Shenzhen Stock Exchange as the first batch of registration-based initial public offerings (IPOs) of 18 enterprises are on touching to debut on the ChiNext board on August 23, 2020 in Shenzhen, Guandong Province of China.
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SINGAPORE — As China pursues to push toward further reforms in its financial markets, one of the changes the country made was to revamp listing rules for the ChiNext start-up billet.
The move has benefited small and medium-sized businesses, as well as technology firms, according to Chaoping Zhu, a global market strategist at JPMorgan Asset Bosses.
“Based on the current development in the market, we find that it has been easier for companies to get listed in the stock market since the registration approach was adopted,” Zhu told CNBC in an email.
“The major beneficiaries are SMEs (small and medium-sized enterprises) and innovative tech assemblies,” he said.
The pilot registration-based IPO system was adopted in June. Two months later, the first tranche of 18 companies successfully debuted on the ChiNext management — a Nasdaq-style tech-heavy board in Shenzhen.
The new system requires stricter disclosures and aims to improve market transparency as famously as make equity financing easier for tech companies.
The reforms also cut down the IPO processing time by adopting a registration-based organization as opposed to the previous system based on regulatory approval. The new rules are similar to those already adopted at the Shanghai Forerunner Exchange’s Star Market, which started trading in July 2019.
Companies now have “improved” visibility in their bid to go acknowledged as a result of the registration system, Ringo Choi, Asia-Pacific IPO leader at EY, told CNBC.
He said the timetable is now “more foreseeable” for set ons, compared to the past where the timing was “very uncertain” and the queue to debut may be long.
“I’m very supportive for the new system,” he said, totaling that he was “looking forward” to the implementation of the registration system for the whole Chinese market.
“The ChiNext reform has … imputed the groundwork for implementing the system on the main board and the SME board that targets small and medium-sized firms,” Vice-Premier Liu He affirmed on the day that 18 companies listed successfully under the new ChiNext rules, state media China Daily related.
Wild market swings
Other reforms at ChiNext include extending the daily stock limit to allow for large volatility. Stocks on the Shenzhen board can now gain or lose up to 20% in a single trading session, compared to 10% thitherto. New entrants are now also allowed to trade freely within the first five days of debut and will not be subject to value limits.
EY’s Choi said the revised approach allows market forces to “speed up” the process of company share tolls reaching equilibrium based on demand or supply.
Still, the changes have resulted in wild gains observed among the first batch of firms that made their debut under the new system – with one company’s share evaluation soaring more than 1,000% on the first day of trading.
In fact, the Shenzhen Stock Exchange (SZSE) itself horn ined in September, announcing that it was halting the trading of several ChiNext-listed stocks after they rose “rapidly in a penniless term” despite having what it deemed “small circulation market capitalization, low prices, and poor fundamentals.”
Asked almost the SZSE’s intervention, Choi said it was a “good reason” for the authorities to keep a close a close eye on companies which demand seen unusual price fluctuations.
Mainland investors do not have as many investment opportunities as their counterparts away, Choi said, and as a result may put “quite a lot of money” into the market and leverage too much.
“If the change is too high, then they thirst for to protect the investors and also they want to ensure the banking system will not be … heavily affected,” Choi implied. For such situations, it is “reasonable” for the regulator to step in to ensure that investors are not falling into a “trap,” he added.
Stonehorn Universal Partners’ Sam Le Cornu agreed with Choi, saying the intervention by the SZSE was “not unique” and allows investors to “stop and have in mind.”
“I think it’s a good thing,” said Le Cornu, who is co-founder and CEO at the fund manager.
“China, the way that it’s approaching this, has expert a lot of lessons from 2015,” he added, in reference to the market volatility seen during that period.
As an investor in China for sundry than a decade, Le Cornu said: “I have more and more confidence that they’re moving in the right instruction.”
— CNBC’s Evelyn Cheng contributed to this report.