Chinese Banks’ Wealth Units Seek IPOs for Higher Gains

As recent regulatory reforms have elevated their investor status within mainland China and fixed income yields decline, banks’ wealth management divisions are increasingly pursuing initial public offerings to secure higher returns.

As of July 25, the wealth management division of Bank of Ningbo has led in the number of IPOs subscribed to. The bank’s wealth management arm announced recent investments in multiple companies listing on the Shanghai and Shenzhen stock exchanges.

The sudden surge in interest in IPOs is primarily driven by a regulatory update in March that grants them the same A-class investor status as mutual funds, which provides priority in allocations and subscription quotas, industry insiders revealed.

This regulatory change has opened the door for direct investment in IPOs—a previously limited opportunity due to their lower investor classification, one source explained.

China’s relatively relaxed monetary policy has also diminished the appeal of fixed income assets like treasury bills and high-grade credit bonds. Additionally, regulatory adjustments have significantly lowered the risk of newly listed shares trading below their issue prices, according to Xue Hongyan, a senior researcher at Jiangsu Su Merchants Bank.

Data from Wind Information indicates that stocks debuting on mainland Chinese exchanges in the first half of this year surged an average of 219% on their first trading day, with only one stock falling below its initial offering price. None of the new listings on the technology-focused Star Market in Shanghai or ChiNext in Shenzhen traded below their IPO prices.

“Participating directly in new share subscriptions offers bank wealth management units a new avenue to increase yields on their investment products,” stated Dong Ximiao, chief researcher at Merchants Union Consumer Finance.

By investing directly in IPOs, wealth managers can leverage price differences between primary and secondary markets for lucrative returns, he added.

Dong explained that while bank wealth products have traditionally leaned heavily on fixed income assets, gaining A-class investor status enables these units to enhance their asset mix and strengthen their competitiveness within the asset management industry.

However, Dong also warned that since investors in these products tend to prefer low-risk options and it will take time to develop specialized IPO expertise, the move toward more equity-based portfolios will be gradual.