SHANGHAI/HONG KONG -- The Shanghai Stock Exchange led the world in cash raised through initial public offerings for the first nine months of this year, thanks to a wave of tech companies choosing to list in their home markets.
Listings on the bourse brought in 279 billion yuan ($41.7 billion) over that period, more than triple the total a year earlier. And with the mega-IPO of Alibaba Group Holding affiliate Ant Group coming next month, the market is poised to take the No. 1 spot on an annual basis for the first time since the 2008 global financial crisis.
The surge suggests that government efforts to persuade businesses to list closer to home, rather than in overseas markets such as New York, are paying off. Individual investors have flocked to technology listings like Ant's planned debut, driving up prices to the point of overheating in some cases.
Chinese online media were abuzz on Oct. 8, the last day of the Golden Week holiday, with the news that five new mutual funds receiving an exclusive allocation of Ant shares had sold out in just two weeks, raising 60 billion yuan. The arrangement has been criticized for handling sales solely through Ant's own Alipay mobile-payment platform.
Retail investors were drawn in by the promise of getting in on the fintech company's anticipated IPO pop even if they missed out on the listing itself, with more than 10 million individuals putting in applications. "I wanted to buy 5,000 yuan worth, but I was allotted just over 4,000 yuan," said a 30-something woman in Shanghai.
The tech-oriented STAR market, where Ant plans to list alongside a debut in Hong Kong, has been particularly busy, with 187.2 billion yuan raised through listings in the nine months through September -- more than double the total on the main board.
The activity on the exchange, and particularly the STAR market, owes to the unique strengths of a market used as an instrument of government policy.
Semiconductor Manufacturing International Corp. debuted in Shanghai in July just two months after announcing plans to do so. The offering, which was fast-tracked amid fears of the U.S. imposing sanctions on Chinese chipmakers, raised 46.2 billion yuan.
The Chinese government has called on prominent companies to return home to list in the mainland and Hong Kong. Cambricon Technologies, a Beijing-based maker of artificial-intelligence chips that had been widely expected to list overseas, and JD Digits, a fintech affiliate of major e-retailer JD.com, have both opted for offerings on the STAR market.
The IPO screening process for mainland markets often takes a year and a half to two years, and there had been a tacit rule limiting offering prices to 23 times a company's earnings per share. Such constraints have been eased recently, while the Shanghai-Hong Kong Stock Connect program, which gives foreign investors indirect access to the Shanghai bourse, has brought in more capital from overseas.
The Hong Kong market itself is also going strong. Companies raised a total of 211.4 billion Hong Kong dollars ($27.3 billion) through offerings on the exchange in the first nine months of 2020, up 58% from a year earlier. Though the pace had slowed somewhat amid the coronavirus pandemic, big U.S.-Hong Kong dual listings by JD.com and game developer NetEase have boosted the total.
Hong Kong led the world in IPOs for a second straight year in 2019 with HK$314.2 billion raised, and Deloitte sees the total for 2020 rising to HK$400 billion. The market is seeing a string of listings by mainland-based companies as the Chinese government seeks to reassure investors that the new national security law will not affect the territory's status as a financial hub.
But state intervention has led to deep distortions in the market for new listings. The STAR market is particularly frothy, with the average price-earnings ratio reaching 100 at one point, while SMIC has tumbled 40% from its listing-day high.