Analysis: China nears moment of truth on IPO reform: crash or recovery?

Thu Dec 19, 2013 7:36pm EST
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By Pete Sweeney

SHANGHAI (Reuters) - China's plan to build confidence in domestic stock markets, and turn around their reputation as financial casinos, will depend on a regulatory gamble paying off next year.

Authorities have decided to lift a ban on new stock listings from as early as next month, wagering that a series of confidence-building measures announced recently will ensure healthy demand for the tide of new shares expected in 2014.

But if they are wrong, a flood of new listings could not only sink China's already-struggling bourses but also jeopardize a bigger reform goal: to ensure more money flows to where it is needed in the world's second-largest economy.

Early signs are not encouraging.

Chinese investors appear far from persuaded that their stock markets are on the threshold of a transformation into investment destinations that are worthy alternatives to bank deposits, property and other preferred homes for their long-term savings.

"We stock investors are all idiots! Idiots!" said a middle-aged man, who gave his surname as Li, speaking in a retail stock-trading room at a brokerage in downtown Shanghai.

"Why do we buy these things? The U.S. market is at an all-time high and the Chinese markets are down. When the U.S. market dives, we dive even further. As for the impact of the resumption of IPOs, my attitude is extremely pessimistic."

Though a market cannot thrive for long without new listings, China's freeze helped trigger a strong rally in early 2013 by choking the supply of new paper. The CSI300 index, made up of 300 stocks on the Shanghai and Shenzhen exchanges, gained over 30 percent in the first two months after the freeze.   Continued...

100 Yuan notes are seen in this illustration picture in Beijing November 5, 2013. REUTERS/Jason Lee