[Epoch Times November 03, 2021]Although Beijing has been expanding its capital market to attract foreign investment, last week, the mainland capital market sounded the alarm. The IPO market has changed drastically. After more than half of the new shares are listed, the issuance will be broken (below the issue price). Investors can be described as “successful in the lottery and shot”; it is rumored that customers in the coal futures market have broken their positions and lay flat! The Beijing Stock Exchange also issued a number of policies late at night, and can’t wait to open the market on the 15th.
So before the Sixth Plenary Session of the Communist Party of China, what kind of signal did the alarm bell sounded by the capital market? What is the mystery of the timing of the market opening chosen by the Beijing Stock Exchange?
Today we will talk about these topics.
Last week, the A-share Shanghai Composite Index, Shenzhen Component Index, and ChiNext fell for three consecutive days, and rebounded on Friday. Perhaps the ups and downs of the stock market are too normal, but new stocks fell below the issue price on the first day of listing, which is rarely seen in the Chinese stock market. Breaking the issue is a loss for investors who sign in the primary market.
On the last six trading days of October, a total of 15 new stocks were listed on the A-share Sci-tech Innovation Board, ChiNext and the Main Board. Based on the closing price, 6 shares broke on the first day of listing, and 2 shares were listed on the second day of listing. Break hair. Including Shenzhen Jiaotong University, National Cheng Kung University, Rongmei, Xinrui shares and so on. It is worth noting that the stocks that broke the issue are concentrated on the Science and Technology Innovation Board and ChiNext. Among the 7 new stocks listed on the Sci-tech Innovation Board since October 22, 4 of them broke on the first day of listing. Among them, the new stock listed on October 28, Chengda Biotech, ranked first in the A-share decline list on the day. At the close, Chengda Bio’s daily decline reached 27.27%.
As you all know, in March, the mainland AI giant Baidu went public in Hong Kong. It also broke during the intraday trading, and then turned from a decline to a rise. Some people may say, why is the current A-share market abnormal? Let’s compare the quotations over the past 5 years.
In 2015, the listing of new shares was temporarily suspended after the A-share market experienced a 1,000-share drop limit. In January 2016, the IPO restarted, and the rules for subscription of new shares were also changed. According to Wind data, from the implementation of the new rules for the purchase of new shares in 2016, until October 26 this year, a total of nearly 1,770 new shares were listed, and the average increase of these new shares on the first day was as high as 96.57%.
It is worth noting that if we distinguish by the issuance system, under the approval system from 2016 to 2021, the average increase on the first day exceeds 43.7%, while under the registration system, the average increase on the first day is because there is no limit on the first day. More than 200%.
It can be said that, in the past 5 years, investors who draw new shares as long as they win the lottery will make a steady profit without losing money, and investors have become accustomed to this “winning lottery as if winning a lottery” model.
But last week, the days of lying down and making money came to an end, the market reversed rapidly, and investors entered the situation of “successful in the lottery”.
So, what causes this sudden change in the market, and what signal does this change send to the market?
Some analysts believe that in the current mainland stock market, the valuation bubble in the primary market is serious. Driven by income, a large amount of funds and investment institutions have poured in. Although investment institutions have grabbed the investment share of these projects, they have not considered the valuation. Bubbles, after all, there are not many high-quality assets in this market, so later investors will face a greater risk of loss.
It is normal for the stock market to have a bubble. This reflects one factor. Let’s look at the deeper factors through a few things that happened in the capital market last week.
Abrupt changes in capital market rules, the market is hard to buy
Last week, the market’s biggest concern should be that the CCP used administrative measures to intervene in the coal spot and futures markets, turning the former “market coal” back to “planned coal” overnight. Another thing is that the Beijing Stock Exchange has introduced a number of rules late at night, and it is basically clear that the market will open on November 15.
Let’s start with the continuous plunge in coal futures prices last week. According to media statistics, as of October 29, the CCP’s Development and Reform Commission had issued 28 documents within 9 consecutive days. On the 27th alone, the National Development and Reform Commission issued three administrative interventions in one day, including rectification of illegal coal storage sites and research. Coal price intervention measures and special supervision of coal spot market prices. In addition, DCE has also coordinated adjustments to the trading limits of coking coal and coke futures contracts, as well as the range of price limits.
According to media statistics, from the close of October 19th to 29th, the cumulative decline of the main thermal coal futures contract reached 40%, the cumulative decline of coke by more than 20%, and the cumulative decline of coking coal by more than 30%. The three coal brothers have started a continuous decline mode, and the price of thermal coal has shrunk by more than half since its peak this year.
Maybe the CCP authorities will feel that this combination of punches is majestic, and it beats the hype capital. Then, what do the market and investors think?
The CCP has opened a futures market, and the futures market itself is a casino with leverage, which is for players to speculate and arbitrage, but now, suddenly the rules have been changed overnight to stop people from betting.
So everyone can see that there are rumors on the Internet that some customers have already sold their positions, but what about futures companies? Panicked, I called the customer to make up for the deposit. But what about the customer? He did not answer the phone, did not make up the margin, and the transaction did not close out. The so-called short-term position refers to the situation where the customer’s equity on the customer’s account is negative, that is, before the position is opened, not only the margin on the customer’s account has been lost, but also the money owed to the futures company. Some investors explained that these customers are using actions to say, “I can only lie flat because of your gameplay, you can figure it out!”
And under the sudden change of the market, this kind of warehouse penetration is not uncommon. According to Lu Media reports, recently, many futures companies have discovered that some customers have reached a loss threshold and need to force liquidation. However, due to the rapid decline in the market, the futures company has not had time to liquidate, which eventually led to liquidation.
As you all know, the policy introduced by the Chinese Communist Party is political first, regardless of the consequences. Some investors commented that the CCP’s intervention in the capital market is really “unheard of”.
While coal prices have plummeted, the Beijing Stock Exchange is eager to start trading.
Where does the battered confidence in the Beijing Stock Exchange market come from?
On the evening of October 30th, the Beijing Stock Exchange issued as many as 10 business rules and supporting rules. These rules will be implemented on November 15th, which means that the Beijing Stock Exchange has basically made it clear that it will open on the 15th. . The mainland media described it as “the speed of the Beijing Stock Exchange.” Looking at it from another angle, this also reflects the urgency of Beijing to accelerate its “money collection”, and it must also be implemented as soon as possible with the heat of the Sixth Plenary Session.
However, Beijing is now hurriedly launching the Beijing Stock Exchange, which can be said to be flawed. why?
First of all, the same problem as the coal market is whether the CCP’s rules and policies on the capital market are as fickle. For example, we mentioned the registration system many times in the program.
In April of this year, Xiao Gang, the former chairman of the China Securities Regulatory Commission, said in a forum that “the full implementation of the’registration system’ still requires a certain amount of time and conditions”, and admitted that there have been some developments in the current reform of the “registration system”. problem. Therefore, through Xiao Gang’s conversation, the outside world has already questioned whether the registration system can go on and whether it can achieve the effect of being in line with international standards.
Xiao Gang also said that the “registration system” involves the ecological construction of the entire capital market, in which the issuer is the first person responsible for information disclosure. The reform of the “registration system” involves the issuer’s integrity, the integrity system, and the construction of an integrity society.
We have also mentioned that lack of integrity and financial fraud are the biggest obstacles to the registration system. However, the registration system paves the way for capital expansion. Beijing must continue to implement it, and the Beijing Stock Exchange must also open the market. So, when the market still doesn’t know the true face of the “registration system,” whether the rules of the Beijing Stock Exchange will become a registration system, but the essence is still the approval system, and the supervision is more stringent.
We can see that the CCP’s operations in the futures market and the stock market are sending a message, that is, the CCP can change its unfavorable rules overnight, and the direct result of this sudden change in rules, It will cause the market not to buy it. This is the first “wake-up call” sounded in the capital market.
Another “wake-up call” is that the market has begun to lack confidence in the economic outlook and China’s stock market, and lack of confidence is most likely to result in a lack of money. You must know that the purpose of the CCP’s capital expansion is to attract more investors to enter the market and trap “long-term investment”. Therefore, it is necessary to create a “money-making effect” instead of the current state of new stocks breaking in the A-share market.
So what will Beijing do?
Prior to this, the Beijing Stock Exchange had just lowered the threshold for investment. On September 17, the Beijing Stock Exchange announced that the capital threshold for individual investors is RMB 500,000, and there is no threshold for institutional investors. At the same time, the entry barrier for investors in the innovation tier of the New Third Board has been lowered from RMB 1.5 million to 1 million.
In fact, the lack of liquidity has always plagued the NEEQ. The 69 companies of the Beijing Stock Exchange have migrated from the NEEQ. So, can the investment threshold be lowered and the liquidity problem can be solved?
On October 29, the “China Securities Journal” stated that in response to the layout of the Beijing Stock Exchange, many brokerage firms have begun to “recruit troops.” There are also media reports that brokerages are accelerating the deployment of the Beijing Stock Exchange and recruiting troops and food. But in addition to recruiting, it is not ruled out that the national team is divided into indicators to support. In addition to the national team, there are also “smart money” and the CCP’s old friend “Wall Street.”
We can see that despite the fact that A shares have fallen for a few days last week, since the 19th, the northbound funds have been very active. Except for a net outflow of 3.042 billion on the 27th, the northbound funds have shown a state of net inflow. That is, investors are still pursuing China’s capital market.
Because capital is chasing profits, short-term enthusiasm is still there. However, the CCP willlessly adjust the rules of the game and intervene at will, and the market will not buy it. Therefore, investors use a flat way to express their loss of confidence in the economy and the stock market. .
We see that Beijing wants to give innovative companies an opportunity to go public and raise funds. But China’s large technology companies, such as Alibaba, JD.com, etc., choose to list in the United States. why? It was also caused by the failure of the design of China’s listing system.
Everyone knows that China’s listing threshold has requirements for profit, and the level of profitability must be no less than how much. However, the level of profitability does not fully measure the prospects of a company. Instead, it gives the company the motivation to make high profits, that is, to make false accounts. And some innovative companies, because of the type of business, cannot make a profit quickly. In the United States, Nasdaq pays more attention to the company’s prospects. For example, Amazon has been losing money for many years, but it has not been unable to go public or delisted because of its losses.
At present, the outside world is saying that the Beijing Stock Exchange is the Chinese version of Nasdaq. So, can you learn it in a different way? Judging from the series of listing and regulatory policies launched by the Beijing Stock Exchange, there is still a threshold for the profits of listed companies, but the flaws of this design will not be conducive to the development of innovative companies. If the CCP cannot truly reform from the institutional level, then whether it can continue to achieve capital expansion is a problem.
Institute of Finance and Economics
Planning: Yu Wenming
Written by: Li Chuanxin
Editor: Wei Ran, Yu Wenming
Editing: Songs
Producer: Wen Jing
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