The Wall Street Journal reports "China's newly reopened initial public offering market shows that large deals don't necessarily lead to big gains for investors.
Although all 45 companies that have listed in China since its securities regulator ended a more than yearlong moratorium on IPOs in late December are trading above their listing prices, it is companies in the consumption and information-technology sectors championed by Beijing, or those that were priced cheaply, that are posting the sharpest gains".
China's biggest IPO so far this year, that of coal producer Shaanxi Coal Industry Co., which raised 4.0 billion yuan ($660 million), is the weakest gainer with a 17% increase. At the other end of the spectrum is Beijing UTour International Travel Service Co. , which raised a relatively modest 337 million yuan but is trading almost three times its IPO price.
"New listings soared mainly because of investors' pent-up demand for new stocks—many of them don't have a prosperous outlook," said Amy Lin, an analyst with Capital Securities.
The China Securities Regulatory Commission stopped approving IPOs in October 2012, only allowing them to resume after overhauling rules in order to prevent offerings from being overpriced. Prior to the moratorium, new listings in the country usually soared on the first day of trading, but often fell, performing less well than the broader market.
The pricing issues, coupled with concerns about China's economy, weighed on the domestic stock market. The benchmark Shanghai Composite Index fell 35% between 2010 and 2013; it is up 0.9% so far this year.
Shaanxi Coal, which said in its listing prospectus it expects 2013 net profit to fall by between 42% and 45% from 6.42 billion yuan in 2012, managed to complete China's largest IPO so far this year in January. The stock's rise from its IPO price exceeds gains in the broader market over the same period, but the miner faces challenges.
More than 90% of the companies that have listed since the securities regulator resumed approving IPOs posted gains of at least 40% on the first day of trading, and nearly half have doubled from their IPO prices. Information-technology companies, commercial services firms and manufacturers in the clean energy and environmental sectors are among the strongest gainers.
"Those set to benefit from government support typically attract stronger interests than cyclical companies like Shaanxi Coal," Ms. Lin said, though she noted that hopes for an early pop, or surge in price immediately after a listing, underpin demand for most IPO stocks.
