Everbright: One man’s damp squib is another man’s star | FT Alphaville

Everbright: One man’s damp squib is another man’s star

Despite Monday’s market rout in Shanghai and dark predictions and theories about the “Shanghai correction”, China Everbright Securities on Tuesday proved that the Chinese still love a good IPO.

The securities company  – the first Chinese brokerage to float since 2002 – surged as much as 48 per cent on its Shanghai debut on Tuesday before closing at 30 per cent above its offer price,  despite the falling market.

In the FT’s view, the first-day gains were “spectacular” and gave “a sign that domestic investors continued to feel bullish about new listings”.

But there’s no pleasing some folks, as Bloomberg showed by running a report under the headline:  “Everbright Securities has China’s weakest 2009 debut”.

Only up by 30 per cent? Just like the muted response last week to China’s swag of fairly robust Q2 growth figures – figures that most western governments would kill for but in China’s case, left analysts unimpressed – Everbright failed to excite.

Everbright closed at Rmb27.40 after raising Rmb11bn ($1.6bn) selling shares at Rmb21.08 apiece. But Bloomberg reported that the brokerage’s first-day gains trailed the average 109 per cent increase of the seven other companies to list shares in China since an eight-month moratorium on IPOs ended last month.

The FT, however, noted that Everbright’s robust performance came in spite of concerns over Chinese government efforts to rein in bank lending that has been supporting the country’s stock and property markets. Last month, Sichuan Expressway closed up 202 per cent on its Shanghai debut while China State Construction Engineering, which raised $7.3bn in the world’s largest IPO this year, rose 56 per cent on its first day of trading.

Monday’s market slump in Shanghai also failed to deter China CNR Corporation, the country’s second-largest trainmaker. The company submitted late on Monday an application to sell up to 3bn shares in Shanghai, which Reuters said could raise about $1bn.

In the view of Jing Ulrich, managing director and chairman of China equities and commodities at JPMorgan,  the 17 per cent slide in the Shanghai Composite index since August 4 is merely a temporary correction that will “soon run its course”.

In Tuesday’s FT, she says the recent selling in Shanghai has been fuelled by “concern about imminent policy tightening and stretched valuations… Economic data for July were reasonably strong, but a sharp fall in bank lending has stoked fears that liquidity could dry up in the second half.”

While bank lending in China is likely to moderate, the government would steer the stock market by “influencing supply and demand, and stimulating confidence through market signals, Ulrich wrote in a separate research note this week. The note continued:

A stable domestic equity market is an important pre-condition for the successful resumption of IPOs and a number of ambitious capital market reforms planned in the near-term — including the first red-chip listings in Shanghai, A-share listings of foreign companies and the launch of a Growth Enterprise Market board.

We believe that in the event of further correction, the Chinese authorities will be prepared to put a floor under stock prices…

FT Alphaville, meanwhile, noted on Monday that there’s increasing anecdotal evidence that China’s economic situation could be “no more than a contrary indicator for recovery” – particularly so with regard to its recent spate of epic commodity stockpiling, now seen as unsustainable going into the second half of the year.

Related links:
Everbright Securities has China’s weakest 2009 debut – Bloomberg
Shanghai downturn – FT Alphaville
China’s fake recovery – FT Alphaville
You kiddin’ me? Questioning China’s robust rebound – New York Post