(Bloomberg) — Trying to get a piece of a new listing in China has always been a long shot, but this year it has become a near-impossible feat.
Investors who successfully secured 500 shares of AI chipmaker Moore Threads Technology Co. at its initial public offering last week would have realized a profit of about 500% on the first day of trade — a gain of approximately 287,000 yuan ($40,600) — had they sold at the intraday high.
But such a windfall remains something of a pipe dream for most investors. The success rate for valid subscriptions for the retail portion was a mere one in 2,750, based on a stock exchange filing from the company.
Chinese regulators have been steering IPOs towards strategic industries like semiconductor and artificial intelligence, making these new listings highly coveted among retail investors. The average oversubscription rate for the year stands at 4,086 — the highest since 2021 — meaning investors have just a 0.02% chance of success with any single bid, based on data compiled by Bloomberg.
Guo Zixuan, a retail investor and full-time blogger in Henan Province, has come to accept that he has little shot at buying into IPOs. “This is about sheer luck, there’s nothing to get upset about,” said Guo, who tried unsuccessfully to secure shares of Moore Threads.
“If you win some, it’s a blessing, if not, you just make sure to subscribe for the next one. It costs you nothing and is almost guaranteed to be rewarding,” said Guo, who said he subscribes for almost every IPO but hasn’t been given any shares in four years.
There’s little drawback for individual investors to submit bids. The Shanghai and Shenzhen stock exchanges allow participation in IPOs with no upfront payment requirements, while the Beijing bourse temporarily freezes a subscriber’s funds during the bidding process. Investors can easily keep abreast of upcoming issues as many brokerage apps feature pop-up notifications about the latest listings.
Retail investors have every reason to apply for an IPO even without scrutinizing the fundamentals. Listings on China’s three exchanges this year saw an average gain of 251% on the first day of trade — and even the worst performer climbed 6%. That contrasts with an average gain of 30% back in 2022, when around a third of new listings closed below their issue price at the end of the first trading day.
Moore Threads’ relatively high issue price of 114.28 yuan a share places the company in a category colloquially known in Chinese as a “big fat ticket.” The term refers to listings that offer successful bidders the scope for larger potential profits. This is because the high issue price multiplied by the 500 shares that investors typically receive, will result in a larger sum if the stock rises by any given percentage amount.
One contributor to the first-day surge in IPOs has been the tighter listing requirements imposed by China’s stock market regulator last year. The new rules created a higher barrier for companies intending to list, effectively limiting the number of issues coming to market. These regulations were introduced after a surge in IPOs was seen as funneling liquidity away from existing stocks, which exacerbated an equities slump at the time.
“The IPO market in China today is very much a planned economy,” said Li Minghong, a fund manager at Beijing Yikun Asset Management LP. “That applies not just in the pace and the amount of funds raised, but also for sector and prestige, with hard tech and innovative firms given priority.”
The total profits for an account subscribing for IPOs is only likely to be about 1%-to-2% a year — even if the first day rallies are much greater — because the chance of getting any allotment remains extremely slim, Li said.
Roughly half of this year’s IPO activity on the Shanghai and Shenzhen exchanges were from the sectors of information technology and industrials, which includes robotics and renewables. Chinese investors have gravitated toward these companies due to global tech rally and the belief that Beijing will favor these industries in the ongoing technological and economic rivalry with the US.
For example, the retail portion of MetaX Integrated Circuits Shanghai Co.’s IPO was 2,986 times oversubscribed, while that of communication chip maker Xiamen UX IC Co. was covered 4,446 times.
“Chips are at the core of this bull rally, and the steadfast dedication from the authorities to growing our tech sector is beyond words,” Guo, the retail investor, said. “I cannot afford to let my guard down on the IPO lottery, especially for tech names.”
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