IPO lure draws elusive investors back to bourses

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By Zhou Yan and Tang Zhihao (China Daily)
Updated: 2009-06-19 10:22

Although 81-year-old Wan Mingshun lost a bundle in the rush for new shares at the tail end of the 2007 boom, he is confident that his luck will change the second time round.

Like hundreds of thousands of investors, young and old, Wan is looking forward to the imminent resumption of initial public offerings, or IPOs, that can happen anytime.

Indeed, they did before the 2008 stock market crash. When the market began to fall in late 2007, IPOs were seen as the major reason for draining market liquidity.

Wan and many of his fellow punters have more personal reasons for complaints. Wan counted himself lucky for winning an allotment of shares at the China National Petroleum Corp (PetroChina) IPO in 2007. But his luck quickly turned into bewilderment as he saw his 1 million yuan investment go on a yo-yo ride as PetroChina's shares slid from 48.6 yuan on debut in November 2007 to 14 yuan at yesterday's close, which is below the issue price of 16.7 yuan.

Now, the market is widely seen to be turning, and "I can't wait to put my money in IPOs", said the retiree, sporting a freshly pressed shirt with blue stripes in the crowded and noisy public gallery of Orient Securities on Fengyang Road in Shanghai.

"The return ratio from new shares could be at least 30 or 40 percent. You can't get a better deal than that," Wan said. "It's not a gamble, it is just the money falling from the sky," the retired engineer of a State-owned enterprise said. "I plan to put 500,000 yuan to apply for new shares issued by any company."

This time, Wan and the multitude of personal investors, can count on getting a fairer deal under the revised IPO rules.

The new mechanism allows a single investor to have only one stock account, which will help small investors to have larger chances of purchasing new shares in an IPO, as compared with the previous norm that any investor with over 5 million yuan in capital can have more than one account.

A security guard at the Orient Securities' trading hall said since early June, when talks of a return in IPOs started gaining ground, he has seen more people coming to the exchange floor, which was almost half empty earlier.

"I expect the hall to be fully packed once the IPOs resume," the security guard said, pointing to the crowd inside.

According to figures from China Securities Depository and Clearing Corp, over 165,000 new stock accounts were opened over last week, the highest in seven weeks.

Not far away from Orient's trading floor, there's another exchange hall run by Shenyin & Wanguo Securities, which is the place Wang Yaoming, a 50-something retired factory worker, visited most frequently recently.

"I rarely come here since over 60 percent of the cash I put into the stock market evaporated last year. There's no other chance to make money from the Chinese capital market now and purchasing new shares in IPOs is my last and only resort to get my lost money back," said Wang, leaning against a marble pillar, while all chairs in the room were occupied.

It's a better choice to buy new shares than saving money in banks, as the return from new shares is definitely higher, Wang said.

"I hope the first IPO is a large cap like China State Construction Engineering Corp (CSCEC), or Everbright Securities, as we stand better chances of getting new shares," a man surnamed Zhou standing beside Wang said.

Historically speaking, the rate of successful allotment on the main board is around 1 percent, while on the second board, the chance drops to around 0.1 percent, according to Wu Feng, analyst, TX Investment Consulting Co.

"Despite that the lot-winning rate for small investors is much higher under the new norm. It is still as difficult as winning a lucky draw," Wu said.

As a matter of fact, not all investors are keen on jumping on to the IPO bandwagon.

"I have been applying for new shares for over a decade, but never won anything and have given up now," a 53-year-old lady surnamed Yu said.

She said it's hard to predict the performance of the domestic stock market going forward. "I would rather deposit my savings in the bank, which is a much safer place."

In addition, some small investors sitting in another Shenyin & Wanguo's trading hall on the Guangdong Road also doubted the "fat" return they can get from new shares.

"I don't think we can get returns as high as before," 61-year-old He Huaxin said, who used to work for a local newspaper.

He said when the pricing mechanism is more market-oriented amid less pricing power from institutional investors, the premium on the first trading day's price will be narrower than the issue price."

According to figures compiled by Zhang Lu, an analyst with CITIC Securities, the investment return ratio of new shares had plummeted from 95 percent in 1997 to 4.2 percent during the first nine months of 2008.

"I hope small caps can go public first, given my concerns that the heavyweights will dampen the market sentiment by diverting huge amount of capital. China's equities market remains weak, regardless of rallies in the past six months," he said.

According to figures from financial data provider Wind Info, nearly 33 firms have been approved by the securities regulator and are awaiting listing, with CSCEC and Everbright Securities planning to raise 42 billion yuan and 10 billion yuan respectively.

"I will sell my new shares immediately after making profits. Capital market is still a dangerous place," Wan said.

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