Recently, China’s A-share market ushered in the critical point that marked the two-year anniversary of the foundation of the Shanghai Stock Exchange Science and Technology Innovation Board and the one-year anniversary of the reform of the registration-based IPO system on ChiNext, which means the registration system has been in operation in China’s capital market for two years. Overall, the system is subtly driving the changes in the ecology of A-shares, investor structures and pricing mechanisms, so that they gradually emulate those of developed countries. The 14th Five-Year Plan, which was passed at the beginning of this year, clearly states that the full launch of the registration system is imperative and shall take place in an orderly manner. Against such background, market participants at all levels are forced to face the long-term change in the market environment, in addition to promptly adjusting their previous development and investment strategies. In the face of these dramatic changes, how should listed companies take into consideration new market preferences while fully uncovering and showcasing their value? How do equity investors avoid new market risks and ensure the steady appreciation of assets? How do foreign investors quickly adjust to the market changes in China? RC Family Office’s June report shall answer your questions and remove doubts.
The A-share ecology changes
1.风云变幻:A股市场生态发生巨大变化，“求关注”或成为常态。A volatile situation: tremendous changes in the market ecology of A-shares and “attention seeking” may become the norm
自注册制实施以来，A股市场发生的显著变化是上市公司的数量增长不断加快。如图1所示，2020年A股新上市公司达396家，超过前两年的总和。而据德勤统计，截至6月18日，2021年新股发行上市数量已达226家，较2020年同期大幅增加。Since the introduction of the registration system, a notable change in the market of A-shares is the continuous rapid growth of the number of listed companies. As seen in Figure 1, there were 396 newly listed A-share companies in 2020, more than the combined total from the previous two years. According to statistics from Deloitte, by 18 June 2021, the number of companies with newly issued shares has already reached 226, a drastic rise compared with the corresponding period last year.
Figure 1 An overview of A-share IPOs between 2018 and 2020
与此同时，近两年机构投资者也开始逐渐占据市场的主导地位。据中金公司统计，2020年各类机构投资者占比已接近50%，达到近20年的最高点（图2所示），股民转基民成为重要变化。Meanwhile, institutional investors have begun to dominate leading market positions in the last two years. According to statistics from China International Capital Corporation, institutional investors accounted for almost 50% in 2020, the highest point in the last two decades (see Figure 2), and a major change was the shift from stock investors to fund investors.
图 2 A股各类投资者持股市值占比
Figure 2 Percentage of market value held by various investors in A-sharesSource：Research Department of CICC, RC Family Office
Due to the combined effects of the trends stated above, A-shares are experiencing the historical turning point, whereby it is changing from a sellers’ market to a buyers’ market. Consequently, some listed companies are unable to attract adequate attention and are finding themselves in real predicaments. In fact, more and more companies with medium or low market values are actively “seeking attention” and inviting institutional investors to reverse roadshows in the hope of increasing the companies’ market values and liquidity.
2.上下交困:监管趋严，专业度要求远超普通管理水平，“被退市”已全面来袭。An absolute predicament: stricter regulation whose professional requirements have far exceeded normal management standards as forced delisting strikes in full force
与注册制配套而行的是更加严格、规范的专业监管。如表1所示，A股市场监管的法制化程度和惩处力度在不断加强。而更为重要的是，退市标准正不断扩充，退市公司数量大幅增长。据统计，过去30年A股退市公司总和为80家，平均每年不足3家。但仅在2020年，退市公司数量便达到16家，创下历史新高。进入2021年后，这一趋势更为突出，曾出现一日内有三家公司同时退市的情况。且作为退市新规首个执行年度，仅今年前半年就有13家公司完成退市。此外，根据沪深交易所发布的最新规则，未来低于“3亿元市值”也将列入退市指标，该规定将于2021年7月1日开始执行。The registration system comes with far stricter and more standardised professional regulation. As illustrated by Table 1, the engagement of the legal system and the severity of punishment continue to increase in the regulation of the A-share market. More importantly, more standards are being introduced for delisting and the number of delisted companies is rising substantially. According to statistics, a total of 80 A-share companies delisted in the last three decades, which were less than three per year on average. In 2020 alone, however, 16 companies delisted, setting a historical high. The trend becomes more marked in 2021, and there was one day in which three companies simultaneously delisted. Furthermore, as the first year in which the delisting rules are introduced, 13 companies delisted in the first half of the year alone. According to the latest regulations of the Shanghai and Shenzhen stock exchanges, which shall come into force on 1 July 2021, “a market value of under 300 million yuan” shall be listed among the delisting indictors.
Table 1 Chronology of major regulatory events in 2020
Market participants face new challenges
1.上市公司：淘汰加速，退市常态化。Listed companies: expedited elimination and normalised delisting
Overall, the transition of A-shares from a sellers’ market to that of a buyers’ and the increased weight that institutional investors assume have expedited market elimination and created a certain impact on the development of certain listed companies. Firstly, as the current A-share market has an extensive selection of shares, some research institutes have to invest most of their research capacities and resources to certain quality companies, causing some listed companies to express concern over the lack of market attention. Secondly, listed companies face a greater risk of being “marked”. According to wind, over six-dozen A-share companies have been marked with a “delisting risk warning” since 2021, which is followed by negative impacts such as massive share dumping by institutional investors and reduced interest of individual investors. Lastly, delisting will be normalised. According to the latest Rules Governing the Listing of Shares on Stock Exchanges, as delisting indictors such as the share values, market values and financial affairs of listed companies continue to be expanded and the intensity of law enforcement increases, delisting will become normalised.
2.境内权益类投资者：底层资产风险规避难度加大。Domestic equity investors: increased difficulty in risk aversion for underlying assets
Against the current background of rapidly changing market ecology, the difficulty in risk aversion for equity investments will rise significantly. On the one hand, companies with good performance, such as Shanghai International Airport and SF Express, were once sought after by institutional investors who later quickly dumped them due to fierce market competition and unfavourable business figures, causing their share prices to tumble by half. Under the current circumstances, the invested companies face fiercer market competition as technology undergoes rapid change and business models continue to innovate. And as soon as the business strategies and tactics deviate slightly, the companies risk a sharp fall in their market values. On the other hand, in the age of omnimedia, any negative information concerning a listed company will spread rapidly like wildfire and often significantly impact its share price, thus placing more stringent demands on the reputation management of a listed company. For instance, in May 2018, Cui Yongyuan, a Chinese television personality, exposed the practice of signing dual contracts in China’s film and television industry on China’s microblogging site Sina and caused a public uproar; the share prices of companies such as Huayi Brothers, H&R Century Pictures and Talent Television and Film then plummeted. In May 2019, the chairman of Buchang Pharma was implicated in the bribery for admission to Stanford University. The scandal was exposed by foreign media and gave rise to a lively public debate, which saw the company’s share price nosedived. To effectively avert and prevent the above-stated investment risks during the allocation of underlying assets, in addition to possessing a professional and solid capacity for fundamental analysis, equity investors must be able to extensively monitor and foresee negative news, including a full analysis of the invested companies – from their daily operations to the senior management, which places higher demands on the professionalism of investors.
3.境外投资者：面对新的市场环境，投资风险增加。Foreign investors: a new market environment means increased investment risk
China’s A-share market is undergoing a new round of major reform and development. Consequently, the frequency and extent of market change are far greater than the capital markets in developed countries such as Europe and America. As the Chinese government steps up its policy support for the opening up of the capital market in recent years, different channels become available to foreign investors accessing the A-share market, along with the continuously improving complementary services and growing investment interest and scale. However, in the ever-changing A-share market, if foreign companies are unable to accurately grasp the direction of market change and understand the unique Chinese market environment, they also face increased risk. Although the A-share market is evolving into a mature market with which foreign investors are familiar, the process will not take place overnight and will see reversals and zigzags and be full of uncertainty. What foreign companies face is a uniquely Chinese capital market, and a large number of preparations and professional customised services are necessary to react appropriately, whether it is policies concerning qualification review and capital flows or asymmetric market information on the invested subjects.
RC Top-Level Strategic Support Plan
RC believes that against the general background of the steady and extensive rollout of the registration system, well-thought-out strategies for the market value are of particular significance to the long-term stability of listed companies and are key means to get the ball rolling. However, the fast and effective market-value strategies and thinking are no longer able to adapt to market changes. Listed companies need to start at the top level and seek to coordinate the overall and market-value strategies and calibrate the market and internal values. It will become the norm that some listed companies need to “seek attention” while the number of companies being marked with a “delisting risk warning” or delisted continues to rise. Equity investors will therefore need to possess a more solid and accurate capacity for analysis and judgement. Due to the complex investment environment in China, foreign investors may face greater obstacles and higher risk-management costs, in addition to higher demands on their abilities to discriminate and perform interconnected analysis. In light of this, what can RC do for our clients?
1.如果您是润成的上市公司客户：If you are our listed-company clients:
RC will formulate a top-level strategic management plan for you based on the industry-valuation system and the long-term corporate development strategies. The plan shall be based on the fundamental analysis of your company, the industry-valuation system and launch and execution. Targeted solutions will also be provided, combining the perspectives of market-investment bodies, public relations and communication; macro-research; corporate capital-development strategies; and legacy and planning. The plan shall include but not limited to “RC Family Office’s customised new market-value public relations”, strategic shareholder introduction, expansion and maintenance of investor relations and formulation of capital-operation plans. From the perspectives of long-term strategies, comprehensive diagnosis and customisation, the expert team at RC willpromote the thorough integration and mutual drive of market-value strategies and the overall development strategies of your company.
2.如果您是润成的境内投资客户：If you are our domestic-investment clients:
RC shall combine macro- and micro-research and analysis to offer you an optimised and differentiated investment model. In terms of equity-asset allocation, we will effectively achieve asset appreciation while maximally reducing the risks through means such as risk-hedging instruments and strategy portfolios. Our unique post-investment public-opinion tracking system will monitor closely any potential negative news, track the latest market changes and provide comprehensive, scientific asset-optimisation plans focusing on the invested industries, stages of business developments, market trends and business operations and teams, so as to properly hedge against any investment risk.
3.如果您是润成的境外客户：If you are our foreign clients:
RC will provide customised general services for your investment in China. Capitalising on our resource reserves and professional experience, we will provide you with comprehensive local-investment strategies, interconnected-policy analysis and investment and capital-flow channel advice. Our internationalised team, local resources and profound practical experience in China’s capital market have given us the unrivalled edge to serve our foreign clients in investing in China.
The sustainability and foresightedness of a family business remain the starting point of RC when serving our clients. We believe the customised services of our family office should be built upon long-term strategies. Our well-rounded organisation and coordination capacity, multi-talent team and strategic thinking ensure our general practical capacities. As client managers, we are also the “GPs” who take care of our clients’ business.
Prepared by: expert team of RC Family Office