Shut out of China’s mega CXMT IPO, global investors hunt for creative backdoors

GLOBAL investors largely shut out of China’s biggest IPO in nearly four years are looking at creative proxy trades as a way to profit from the country’s fast-rising memory-chip leader. 

Unable to buy directly into ChangXin Memory Technologies’ planned US$9.8 billion listing because of various regulatory restrictions on participation in mainland IPOs, many overseas investors are instead piling into brokers and even crypto derivatives tied to the blockbuster listing. 

The scramble for alternative trades underscores China’s growing heft in memory chips, a sector drawing intense investor interest amid surging demand from smartphones to AI servers. Peers like SK Hynix and Samsung Electronics have already soared, raising hopes that CXMT’s IPO could unlock further industry gains.

“Most global investors such as ourselves won’t be able to participate, (though) we would have considered for sure,” said Kevin Net, a portfolio manager at Financiere de l’Echiquier in Paris. “Memory is an essential part of the AI theme, and Chinese players already are meaningful players, which will probably continue to take share.” 

Financial intermediaries

Among favoured alternatives are financial intermediaries that stand to benefit from underwriting fees or pre-IPO investments in the company. China International Capital and CSC Financial, the IPO sponsors, have seen their Hong Kong-listed shares rise nearly 15 per cent and 12 per cent, respectively, over the past three months, beating the Hang Seng Index’s near 5 per cent decline.

Bank of America analysts upgraded China Merchants Securities to a buy rating in May, citing potential second‑half investment gains in part from a CXMT IPO‑driven tech rally. Shares are up 18 per cent since mid April.

Others are betting that a successful IPO will help finance CXMT’s future expansion plans and lift demand across China’s semiconductor landscape. Domestic chip stocks have rallied in recent months ahead of the IPO and Beijing’s continued push for stronger AI support, with the chip-heavy Star 50 index soaring 37 per cent in the past three months. CXMT suppliers including ACM Research Shanghai, Jiangsu Yoke Technology and Piotech have all nearly doubled during the period. 

On Wednesday (Jul 15), chip stocks slid as market participants pointed to a reduction in tech holdings ahead of the listing. 

Crypto startup Trade.xyz has also just launched a perpetual futures contract tied to CXMT, with prices spiking in early trading on Wednesday.

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Potential geopolitical risks

Still, not everyone is sold on the appeal of the upcoming listing. Some investors are hesitant to add exposure given existing positions in global memory makers and potential geopolitical risks around US-China tensions. 

“Stock prices have gone up a lot for memory companies and if you think the sector will continue to go up, you can just buy leaders like SK Hynix and Samsung, especially with ADR listing,” said Yak Chauwei, chief executive officer at GAO Capital in Singapore. 

In some ways, the search for proxy trades echoes a pattern seen in other blockbuster listings. In June, Asian investors largely shut out of SpaceX’s US$75 billion IPO piled into space-industry suppliers, thematic exchange-traded funds and index-tracking products as alternative ways to gain exposure.

For now, the excitement surrounding the listing is mostly growing, leading some strategists to expect it will reshape flows across Asia’s semiconductor sector in the longer term. 

“China semi bulls expect CXMT market cap to reach multiple times higher than the listing price,” Pankaj Mataney, head of platform sales and index strategy team at Morgan Stanley, wrote in a note. 

This could ultimately lead to shifts in money flows including drawing funds away from Hong Kong-listed leveraged exchange-traded funds tied to SK Hynix and Samsung, he added. BLOOMBERG