[HONG KONG] Chinese companies have almost doubled their proceeds from share issues in initial public offerings and secondary markets after favourable policy winds from the government in Beijing stoked massive stock market rallies in Hong Kong and the mainland.
The government has cut interest rates and lowered reserve ratios at banks to free up more cash in the financial system as China's economy slows. That has pushed up stock markets as investors expect the authorities to roll out even more measures. That hopeful outlook has also been fuelled by bullish stock market reports by state media. The mainland market has risen some 150 per cent in the past year. Some analysts warn that investors are taking on greater risk as valuations outstrip fundamentals.
Riding on this wave of euphoria are Chinese companies looking to strike while the iron is hot. The stock market is now a lucrative route to capital, especially after the launch of the Hong Kong-Shanghai stock connect in November widened access to Chinese shares. The decision last week by U.S. index provider MSCI Inc to delay adding Chinese stocks in its emerging market benchmark share indexes will only raise expectations of further capital liberalisation to attract overseas funds."Companies will keep on issuing new shares as long as the super bull market is sustained," Chen Jiahe, chief strategist at Cinda Securities, said of the next six months.
New share issues by Chinese companies in China and Hong Kong totalled US$63 billion so far this year, almost doubling from the US$34.5 billion of proceeds a year earlier, according to Thomson Reuters data. The surge in share issues has been driven by financial firms, whose fund-raising in the stock market has increased more than 600 per cent to US$23.5 billion in the first half of this year from US$3.3 billion a year earlier. Brokerages like CITIC Securities and Haitong Securities are tapping the markets to expand their business.
With Beijing's push to nurture China's soft power, there has also been a boom in media and entertainment share issues, whose proceeds are up more than 500 per cent in the first half to US$3.7 billion. Healthcare companies have similarly cashed in, with proceeds jumping more than 400 per cent to US$3.7 billion.