School of Economics and Management, Tongji University

Recently, Ruan Qingsong, vice president of our school, deputy secretary of the Party Committee and professor in the Department of Economics and Finance, accepted an interview with Hong Kong Wen Wei Po, saying that the yield of new shares was still relatively considerable. The following is the original article published.

Ruan Qingsong, a professor in the School of Economics and Management, Tongji University, told the Hong Kong Wen Wei Po that the overall risk of the capital market this year was greater than last year, the shift in monetary policy by central banks was of particular concern, and the marginal tightening probability of liquidity was relatively high. In this context, compared with the previous two years, the incremental funds in the A-share market may be reduced.

“In the loose environment over the past two years, the valuation of the A-share market has been constantly pushed up, but monetary policy is bound to tighten one day. The fact that monetary policy has not taken a sharp turn for the time being does not necessarily mean it will not change direction in the future. Therefore, it is difficult for the valuation of A-share to expand again in 2021, which should be relatively certain.” Ruan Qingsong believed that in 2021, the A-share market would still be dominated by the structural market, and the investment logic should be transformed to be profit-driven, more attention should be paid to the profitability indicators including the company’s operating cash flow and ROE level, and the expected valuation should be lowered.

He predicted that the available funds would still follow the money effect. From the performance of new shares at the beginning of the year, despite the yield decline, they still have a positive profit as a whole. Meanwhile, the IPO pricing and P/E ratio are still relatively neutral, providing upward space for the first day performance. The trend is expected to continue into 2021 H1.

Starting from 2021 H2, it may be necessary to match the valuation of new shares with the prosperity of the industries that they belong to. If the market valuation center moves down, there will be pressure on new shares.

Ruan Qingsong pointed out that although the performance of new shares was not as good as that in the earlier years, the yield was still relatively considerable and still sought after by the majority of mainland investors. “Recently, the online lot winning rate of new shares has basically maintained at 3/10,000, while the proportion of offline subscription and allocation has been at 1/10,000, proving the popularity of the new share market. At present, the risk of stagging is still less than that of income.”

He also mentioned that the issuance of new shares was becoming increasingly rational, which was a sign of gradual maturity of the A-share market. According to Ruan Qingsong, at present, the issuance of new shares had been moving towards marketization. The CSRC and the stock exchange should maintain the normal issuance of new shares on the premise of maintaining a stable market, pay attention to the balance between supply and demand at both ends of investment and financing in the market, expand financing channels for enterprises, coordinate unity of issuance, registration and market bearing capacity, and reduce administrative intervention and window guidance.

Valuation May be Challenged in 2021 H2

He predicted that the available funds would still follow the money effect. From the performance of new shares at the beginning of the year, despite the yield decline, they still have a positive profit as a whole. Meanwhile, the IPO pricing and P/E ratio are still relatively neutral, providing upward space for the first day performance. The trend is expected to continue into 2021 H1.

Starting from 2021 H2, it may be necessary to match the valuation of new shares with the prosperity of the industries that they belong to. If the market valuation center moves down, there will be pressure on new shares.

Ruan Qingsong pointed out that although the performance of new shares was not as good as that in the earlier years, the yield was still relatively considerable and still sought after by the majority of mainland investors. “Recently, the online lot winning rate of new shares has basically maintained at 3/10,000, while the proportion of offline subscription and allocation has been at 1/10,000, proving the popularity of the new share market. At present, the risk of stagging is still less than that of income.”

He also mentioned that the issuance of new shares was becoming increasingly rational, which was a sign of gradual maturity of the A-share market. According to Ruan Qingsong, at present, the issuance of new shares had been moving towards marketization. The CSRC and the stock exchange should maintain the normal issuance of new shares on the premise of maintaining a stable market, pay attention to the balance between supply and demand at both ends of investment and financing in the market, expand financing channels for enterprises, coordinate unity of issuance, registration and market bearing capacity, and reduce administrative intervention and window guidance.

Originally published in Hong Kong Wen Wei Po on April 7, 2021