Author: Gordon Platt


Led by the Asia-Pacific region, global proceeds from initial public offerings totaled more than $34 billion in the first quarter of 2014, an increase of 77% from the same period a year earlier, according to Renaissance Capital. However, the return of IPOs to China’s A-share market, which boosted the total for the Asia-Pacific region, proved to be short lived. Meanwhile, some analysts have turned cautious on global equity markets, owing to geopolitical concerns and high valuations.

The Asia-Pacific region accounted for 41% of the first quarter’s IPO proceeds, including $3.3 billion from China-based companies, which were barred from issuing IPOs a year earlier. The new issues from China came in just one month, before the A-share market shut down once again, out of concerns about accounting quality and the threat of an impending Chinese debt crisis, Renaissance Capital says.

China had been expected to produce a record number of new stock listings this year after the country’s regulator lifted a 14-month ban on IPOs. However, in late January the China Securities Regulatory Commission stepped in and ordered a review of the financial statements of nearly 900 companies seeking to go public.


Steven Sun, head of China equity strategy at HSBC, says sweeping reforms to China’s markets will improve the depth, breadth and transparency of the markets. HSBC forecasts that China’s A-share market capitalization will grow from $4 trillion at present to $10 trillion by 2020, driven by the expected inclusion of A-shares in global benchmark indexes, such as the MSCI.

China’s market is still largely closed to overseas investors, Sun notes, with only 3% of the current market cap owned by foreigners through a quota system. Foreign participation could reach 10% of the market by 2020, as China continues to liberalize its financial system, Sun says.

“For the past 30 years, China has relied on bank lending for financing, but the shift away from bank loans should allow the stock markets to expand their reach by financing riskier, more productive and innovative projects,” Sun says. China’s reforms are expected to help to get capital to where it is needed most—the credit-starved private sector, rather than large state-owned enterprises, he says.

The European markets combined to raise $12 billion in IPOs in the first quarter, with particularly strong activity in London, according to Renaissance Capital. Europe accounted for 35% of first-quarter proceeds.




John Vail, chief global strategist of Nikko Asset Management, says: “We believe that equity valuations have peaked and that markets will trade nervously going forward. On top of that, unsettled geopolitics make us uncomfortable, and the fallout from China’s reform efforts could cause some shocks.”

Nikko Asset Management in April cut its two-and-a-half-year overweight stance on global equities to neutral. “Clearly, the largest confrontation between former Cold War enemies since the end of the Soviet system entails many major risks,” Vail said in a recent report.

“In a few markets we expect equities to do well, but against the tunnel of uncertainty looming out there—and given the slim difference between our bond and equity return forecasts—we feel a neutral view on global equities versus bonds is warranted.”

In the depositary receipt market, SMC, a Japanese manu-facturer of pneumatic equipment, appointed BNY Mellon as depository for its American depositary receipt program. Previously, SMC traded in the US over-the-counter market as an unsponsored DR.

BB Seguridade, an insurance and brokerage holding company controlled by Banco do Brasil, named Deutsche Bank as depository for its Level 1 ADR program.

TNT Express of the Netherlands, which provides delivery services, selected Citi as the successor depository for its sponsored Level 1 ADR program, which trades in the US over-the-counter market.