As 2024 approaches its conclusion, a significant decline in the number of initial public offerings (IPOs) in the Chinese market has captured the attention of investors and analysts alikeThe total number of IPOs for the year has drastically dropped to approximately 100 companies, with total funds raised amounting to only around 67.3 billion yuanThis marks a noteworthy downturn, as it is the first time since 2014 that the annual fundraising total has fallen below the 100 billion yuan threshold.
Taking a broader view, a comparative analysis of the past decade reveals that from 2020 to 2023, IPO fundraising in China was exceptionally robustIn each of those years, more than 350 billion yuan was raised, alongside an increased number of IPOs exceeding 300 companies annuallyIn stark contrast, the figures for 2024 represent less than half of what was achieved in those prosperous years, indicating a significant reduction in fundraising activity.
The funding level achieved in 2024 closely mirrors that of 2014, illustrating the distinct slowdown in the IPO market — a trend which may provide a necessary pause for the overactive market, allowing various stakeholders to recalibrate and reassess their strategies.
Furthermore, an observation of the A-share market performance throughout 2024 paints a different picture, demonstrating a rebound from previous lows
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As of December 27, the Shanghai Composite Index had increased by 14.29%, while the Shenzhen Component Index and the ChiNext Index had risen by 11.92% and 16.58%, respectively, pointing towards a positive turn in market sentiment, despite the lackluster IPO numbers.
But what is the correlation between stock market dynamics and the scale of IPO fundraising? Reflecting on IPO fundraising patterns over the last decade shows that both 2014 and 2024 are similar years featuring total IPO fundraising under 100 billion yuan, with corresponding stock market performance of +52.87% and +14.29%.
In comparison, during the years when IPO fundraising exceeded 100 billion yuan, particularly in 2015, 2016, and 2018, the stock market exhibited mixed reactions with increases of +9.41% and declines of -12.31% and -24.59%. Thus, from this data, it appears that the connection between reduced IPO fundraising and improved stock market performance is tenuous at best.
Observing the period from 2020 to 2023, when IPO fundraising reached unprecedented heights, the stock market's performance varied significantly: with annual changes of +13.87%, +4.80%, -15.13%, and -3.70%. The pattern indicates that, apart from the designated years of 2014 and 2024, the IPO fundraising amounts did not correlate strongly with variations in stock market performance.
It isn’t sufficient to measure the impact of changing IPO fundraising alone on stock performance
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The dynamics of refinancing, alongside the actions of major shareholders and significant reductions in their holdings, need to be incorporated into our analysisHistorical data indicates that there have been years in which the refinancing activity in the A-share market eclipsed the volumes of IPO fundraising significantly.
By December 19, 2024, the total amount of refinancing in the A-share market had reached 215.2 billion yuan, marking a remarkable 71% decrease year-on-yearFinancing activities include private placements, share distributions, and convertible bonds among othersThis comes as a stark reminder that despite the dip in IPO fundraising, the refinancing scale was about three times that of the IPO fundraising, further underscoring the potential impact that refinancing figures can have on the stock market.
Distinctly, 2024 marks a shift in the A-share market towards de-emphasizing its previous heavy reliance on "fundraising." Instead, the year has notable patterns where the scale of IPO fundraising and refinancing is evidently below the levels of dividends and repurchases
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This change signals a transformative moment within the A-share market, emphasizing a growing importance on investor returns.
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