CSCEC IPO Success Raises Bubble Fears

July 23 saw China State Construction Engineering (CSCEC) price its record initial public offering (IPO) at CNY50.2bn (US$7.34bn), the largest such offering for over a year. CSCEC sold 6bn shares each to retail and institutional investors (roughly 40% of its expanded capital) at the top of the indicative range, attracting a total of CNY1.85trn. CFW had predicted a raft of IPOs after China's Securities Regulatory Commission lifted a 10-month moratorium on offerings, and though further IPOs are still expected, the fact that the homebuilder's offering was over 35 times oversubscribed has raised questions about the formation of a speculative asset bubble in China. Debon Securities strategist Wu Binghua said that 'there's extremely ample liquidity in the financial system, chasing all kinds of assets, whether real estate or stocks.' The Shanghai Composite Index (SCI) has risen by over 85% this year on the back of abundant liquidity stemming from massive levels of government-backed bank lending. Indeed, the bounce hit a thirteen-and-a-half-month high of 3,279.59 on July 21. On July 23 Wu Xiaoling, the former vice governor of the People's Bank of China, warned that excessive lending in China has flowed into the stock and property markets, which could inflate an asset bubble.

To read the full article, please choose one of the following options: