Shares in China’s Bank of Communications highlighted the current Chinese penchant for new listings on Tuesday. Having an initial offer price of 7.9 Yuan, the shares shot up by nearly 71 per cent to close at 13.54 Yuan, at the end of days trading. With this kind of performance, BoCom baffled several market analysts.
Analysts had expected a strong investors’ response, but the sharp rise in the share price was well beyond their highest estimates. They had expected BoCom shares to debut at about 12 to 13 Yuan. Instead, the market sentiments pushed the debut price up at 14.2 Yuan on the Shanghai Stock Exchange. The price went as high as 14.99 Yuan during the early trading.
The bank had offered a total of 3.19 billion shares. It received an overwhelming response from the investors and received about 1.455 trillion Yuan of subscriptions during the IPO. The price, yesterday, gives HSBC a profit of $11.8 billion on its initial investment of $1.7 billion, back in 2004. HSBC’s stake in BoCom has fallen from being nearly 20 per cent to 18.6 per cent, as a result of yesterday’s offering. However, Jiang Chaoliang, chairman of BoCom, said that he expected HSBC to restore the current stake back to the original status. China’s ministry of Finance has also reduced its stake from 21.78 per cent to 20.36 per cent after yesterday’s offering.
The overzealous market response to BoCom’s listing yesterday is a reflection of the bullish sentiment in the market. Several experts fear that conditions are akin to an investment bubble. Chinese households are heading towards the stock markets because the bank rates are well below the inflation rate. The one-year benchmark rate is 2.79 percent and inflation was 3 percent in April. Quick profits are luring the investors into opting for share trading. Central bank Governor Zhou Xiaochuan this month said domestic shares are rising too fast and an equity bubble may be building.
Interestingly, the prices of BoCom’s shares yesterday were in sharp contrast to the overall market, which drooped 3.6 per cent. The shares did well away from the mainland, spurred by the response back home. On the Hon Kong Share Market, BoCom shares rose 1.07 per cent to close at HK$8.52.
