MSCI Inc’s addition of A-shares denominated in yuan might weigh on the nation’s initial public offering (IPO) activity as more local firms with overseas operations might seek listings in the Chinese market, Ernst & Young Taiwan said yesterday.
As of last week, the Taiwan Stock Exchange and Taipei Exchange markets had seen 20 IPO deals, raising a total of NT$7.013 billion (US$231.2 million), the consultancy said.
The results suggested a significant retreat from the same period last year, as the local stock market’s turnover remained modest and concentrated on a few heavyweight technology shares, even though the TAIEX surpassed the 10,000-point mark, Ernst & Young Taiwan’s chief executive officer Andrew Fuh (傅文芳) said.
The inclusion of A-shares on the MSCI, a closely tracked global investment index, might lure more funds to the Chinese bourse, making IPO applications in Taiwan less attractive, Fuh said.
Only four foreign-registered Taiwanese firms sought primary listings in local capital markets in the first half and the number might drop further as A-shares gain popularity and Chinese authorities speed up reviews for applications, Fuh said.
Chinese securities authorities used to spend three to four years reviewing bids to list A-shares, but have demonstrated much better efficiency this year as evidenced by the rapid increase in IPO deals, the consultancy’s assurance leader Lin Tu (涂嘉玲) said.
There were 246 IPO deals in China with firms raising 125.6 billion yuan (US$18.37 billion) in the first half, more than three times last year’s showing, Tu said, adding that the number of firms waiting for regulatory approval fell by 20 percent to 585.
Chinese shares enjoy higher price-to-earnings ratios with returns for new shares averaging 153 percent, stronger than markets elsewhere, the consultancy’s semi-annual report showed.
“Some customers have voiced preference for listings on Chinese bourses,” Fuh said.
There might be from 50 to 60 IPO deals in Taiwan this year led by firms in the technology and biotechnology sectors, Fuh said.
While global funds have raised significant positions in local shares this year, they have concentrated on a few heavily weighted shares, lending little support to IPO activity, Fuh said.
The company is to help court Taiwanese firms based in South Asia and Southeast Asia as the nation is seeking to strengthen trade ties with the region, Fuh said.
The effort might produce limited success because of Taiwan-specific corporate governance requirements, Fuh said.
“Authorities should be more flexible in dealing with firms based abroad if they are serious about winning them over,” Fuh said.
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