cks
Cheung Kong Holdings, sporting the confident exchange ticker HK:1, is the brainchild of legendary founder and tycoon Li Ka-shing, the richest Asian in the world. His property development firm has extensive holdings in the PRC.  Photo: CK Hldgs

Translated by Andrew Vanburen from a Chinese-language piece in Sinafinance

GOOD THINGS USUALLY COME to those who wait, with the emphasis on "usually."

Case in point, last week the markets in Shanghai and Shenzhen finally had an upbeat five days, their first such run in nearly eight weeks.

But investors better keep the champagne on ice because eight new IPOs out soon are likely to put a crimp on capital circulating in the markets, especially pressuring the big blue chip firms out there.

In theoretical science, there is no such thing as a true straight line, and linear growth is something best used to describe the annual height spurts of adolescents.

But in the world of capital markets, the sudden turnaround – albeit brief – in the benchmark Shanghai Composite Index last week will likely provide a slightly more welcome environment for the eight new Chinese firms looking to sell A-shares.

In addition, in tandem with the more robust benchmark index performance of late, more money has been liberated from other more stable but lower yield areas of investment, making a more visible appearance in the country’s stock markets.

Daily turnover and trading volume evinced a clear upward trend last week, with new fund injections helping to raise most boats on the bourse.

At the same time, more than just a sampling of well-known counters had a standout week, with blue chips making up for several back-to-back losing weeks.

But this could all change quite soon, once again tempering any hope investors might have for linear growth in large-cap valuations going forward.

That’s because eight new aspirants are ready and hungry to take their piece of the capital pie very soon, which will bleed funds away from the conduit of support lifting existing listcos of late.

chinalife
Full Court Press: Yao Ming is a spokesman for China Life, the PRC's top insurer, which is currently trading around midpoint of its 52-week range.  Photo: China Life


And looking beyond the scope of the A- and B-share markets in Shanghai and Shenzhen, it becomes readily apparent that both the enthusiasm and the ability of global investors to continue to throw their lot into equities is diminished by ongoing – and in some cases deteriorating – budgetary and sovereign debt crises worldwide, most notably in the US and EU, respectively.

If history is any guide, this has a commensurate downside drag on fund inflows which is worth taking into consideration, despite the fact that overseas money still plays a relatively small role in the daily undulations of A- and B-share aggregate valuations.

It is also very well worth noting the dynamic that exists between recent new listco numbers and capital raising totals, as well as the inevitability of correlations being drawn between the PRC and Hong Kong.

In the first quarter, Hong Kong’s stock market welcomed 18 newcomers, up from 12 a year ago.

But these first quarter IPOs raised less than 10 billion yuan, down from the 16.4 billion raised in the first quarter of 2011.

If the old adage is true, that capital knows no boundaries, then investors celebrating the sudden spurt of IPOs hitting the region's bourses will no doubt be tempered by the realization that there will not only be less money chasing these newcomers for a variety of reasons, but the existing outperformers will be more hard-pressed to attract funds to their respective causes.

All this translates into a resulting need for investors to keep a close eye not only on valuations in Shanghai and Shenzhen, but also daily turnover fluctuations.

See also:

NEW KID ON BLOCK: 21 A-Shares In Red; 4 In Hot Water

History Professor: 'PRC Headed For Hard Landing’

KINGS OF THE HILL: 12 Banks Produce Over Half Of All Listcos’ Profit

What’s Really Behind China Share Rally?

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