A shares just smashed another record, with 2017 seeing an unprecedented number of new listings on the two main bourses in the Chinese mainland. But although it may seem like a milestone, it should prompt calls for faster and more fundamental reforms of the mainland equity market.
A total of 437 companies floated on the mainland stock market in 2017, a rise of 93 percent compared with 227 in the previous year, according to data released on Tuesday by PwC. This dwarfed the number of IPOs on other major global exchanges. Throughout 2017, 77 companies floated on the New York Stock Exchange, 122 on the NASDAQ, 100 in London, and 174 in Hong Kong, the PwC data showed.
The IPOs in the mainland market accounted for more than a quarter of the global total, which according to London-based financial markets platform Dealogic hit about 1,700 in 2017.
Given that China is also home to the world's second-largest securities market based on capitalization, this may appear to suggest the buoyancy of the domestic market.
But there are strong concerns about the fact that the ever-ballooning A-share market has yet to be equipped with an effective delisting mechanism or a regulatory framework that can properly protect individual investors.
In fairness, the two stock connect schemes linking Hong Kong with the two mainland exchanges in Shenzhen and Shanghai allow for more funds to be invested in the mainland market. But unlike the other global bourses where there are plenty of global funds, the mainland market is mainly comprised of domestic investors, the majority of whom are individual investors. The trading schemes, essentially two-way conduits, are seen to have contributed to last year's stellar performance in Hong Kong. The mainland market, which has seen impressive performance of the "Nifty 50" blue-chips over the past year, has been less forgiving for smaller caps.
This means the availability of more IPOs in the market only renders stock selection an even harder task for mainland investors, many of whom lack professional knowledge and judgment.
The popularity of various WeChat groups that allegedly provide stock investment consultancy services epitomizes the increased difficulty of investing in mainland stocks, as the investing "secrets" offered by these groups often turn out to be misleading.
The market regulator has in recent years toughed up on irregularities, notably insider trading and price manipulation. This firmer regulatory stance also prompted PwC to predict a slowdown in A-share IPO numbers this year by at least 20 percent compared to 2017.
The recent clampdown on WeChat accounts that offer investment and stock recommendation services could also be one of the solutions to existing anomalies and irregularities.
But this is still only addressing the symptoms rather than the root cause of the problem. The mainland equity market is still burdened by the absence of a proper delisting mechanism and an oversight framework that punishes market offenders adequately.