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People's Daily Online>>China Business

Capital raised on A-share market likely to decline

By Jiang Yaya (Jiefang Daily)

16:05, January 30, 2012

Edited and translated by People's Daily Online

A large amount of capital was raised on the weak A-share market in 2011, with the Shanghai Composite Index and Shenzhen Component Index declining over 17 percent and 20 percent, respectively, from the previous year.

Industry insiders generally believe that given the persistently sluggish stock market, the amount of capital raised on the A-share market is likely to fall below 600 billion yuan in 2012, even if the market continues to expand.

Compared with more than 1 trillion yuan raised in 2010, the amount of capital raised on the A-share market already decreased to a certain extent in 2011, due to the sluggish global economy and uncertainties in capital markets.

However, nearly 300 new listings on the Shanghai and Shenzhen stock exchanges last year raised a total of more than 270 billion yuan, and more than 200 companies raised about 440 billion yuan through the issue of new shares on the two exchanges. Overall, the A-share market continues to lead the world in the amount of capital raised.

Given the A-share market's long-standing problem of excessive emphasis on capital raising without due attention to dividend paying, industry insiders said that both the average price-earnings ratio and number of initial public offerings on the A-share market will drop this year, bringing IPO volume growth to a halt.

The A-share market has been weak since last year, which has driven the prices of many shares almost down to their net asset value. In such a situation, domestic banks which raised large amounts of capital a few years ago now find it difficult to raise more capital through the issue of new shares. Therefore, the amount of funds raised through the issue of new shares is also likely to drop.

Based on the above analysis, industry insiders predict that the amount of capital raised on the A-share market is likely to fall below 600 billion yuan in 2012, which will give the market an opportunity to rest and recover.

However, industry insiders also noted that the shares of companies with core competitiveness will remain popular on capital markets. Sun Jin, a partner at PwC China, said that the average price-earnings ratio of IPOs on the A-share market is likely to further drop this year.


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