China crashes could provide boost to foreign firms
The continuing stock market turbulence in China that led to the closure of its exchange last month could provide cross border companies who wish to float there with fresh opportunities.
Pending reforms to registration for China's IPO market - the busiest in the world up until closure in June - are now being fast-tracked while the market is suspended.
Sweeping updates to the country's stock market are now being integrated before its expected re-opening for IPOs later in the year, with new measures expected to be passed into law by next March.
When the IPO market re-opens, it's more likely to resemble its US counterparts, meaning increased transparency for foreign firms, analysts predict.
There may even be a trend of Chinese companies de-listing from the New York Stock Exchange and re-listing on the home market, to take advantage of higher valuations than they could otherwise expect as mid-cap firms in the US.
New proposals on requirements for share issuance by foreign companies in China may also allow professionals in the securities industry to trade stocks themselves for the first time.
Pre-requisites for foreign firms to demonstrate profit and earnings sustainability would also be dropped under these new rules,while corporate executives would have to pass background checks.
Businesses may also have to demonstrate that their financial filings have not been rejected at any time by auditors.
China's financial authorities are currently waiting for the dust to clear over its domestic stocks crashes this month and last, to continue with Western-style equity capital market reforms.
The country has been reforming and refining its IPO process for a number of years in a bid to make its market more internationally-competitive and clamp down on corruption.
As of 9th June, Hong Kong had seen nearly $13bn worth of new listings this year and Shanghai $11bn, more than any other stock market in the world, according to the US financial software company Dealogic.
However, the plunge in stock prices from mid-June wiped around $4tn off the market values of Chinese exchanges, and that’s not even counting this Monday’s losses – the heaviest seen since 2007.
Perceptions are now that China will do whatever it takes to boost confidence and spur economic activity, as seen by Beijing’s direct intervention in the stock market.
The Chinese Securities Regulatory Commission (CSRC)has intervened in market slides before, most recently in 2012 when it froze IPOs for over a year.
Up until now, IPOs had been thought of in China as an easy way to make a return, but fears of Shanghai and Shenzhen stock market valuations being excessive compared to their fundamentals were ultimately realised.
BNP Paribas estimated in April this year that over 70 per cent of stocks on these markets commanded prices that exceeded 50 times earnings, while 40 percent fetched over 100 times earnings.
Around five hundred firms are currently looking for approval to conduct IPOs on China’s renminbi-denominated A share market.
While IPOs have since been put on hold in Shenzhen and Shanghai, Hong Kong’s IPO market remains in full swing.