Summary of Key Points
This year, new technological sectors such as AI, computing power, semiconductors, and robotics have become hot targets for A-share market investors. This enthusiasm has spread to the new stock market, leading to record-high returns from new share offerings. In some cases, the profit from a single share purchase on the first day of trading can reach hundreds of thousands of yuan, which is equivalent to an ordinary person's annual salary. Not only individual retail investors are benefiting from these opportunities, but institutional investors (VC firms, public funds, social security funds, etc.) are also securing significant gains through early investments, strategic placements, and offline new share offerings. The underlying logic is that investors are now valuing technology companies based on their potential for future growth, rather than just their current profitability. However, new share offerings are not always a surefire profit; market sentiment and company fundamentals can still pose risks.
I. How Exaggerated Are the Returns from New Share Offerings? The “Wealth Myth” for Retail Investors
This year’s returns from new share offerings have made many retail investors feel as if they have won the lottery. For example:
- Fenzhun Laser: With an issue price of 186.88 yuan per share, the stock price soared to 1300 yuan on the first day of trading, resulting in a profit of over 550,000 yuan from a single 500-share purchase—equivalent to three years of salary for a mid-level manufacturing worker like Xu Fei.
- Zhenbao Technology: With an issue price of 44.5 yuan per share, the stock price rose to 585 yuan on the first day, a 12-fold increase, earning 270,000 yuan from a single share purchase—more than two years of income for a primary school teacher like Wang Hao.
- Changxin Technology: With an issue price of 8.66 yuan, the stock price increased by 4.6 times on the first day, earning 70,000 yuan from a single share purchase—roughly two to three months of salary for a financial professional like He Min.
These impressive returns have led retail investors to talk about new share offerings as a lucrative side business. In fact, a single successful purchase can even offset previous losses or significantly improve one’s financial situation (for example, Xu Fei might use the money to buy a new car).
II. How Do Institutions Share in the Benefits? It’s Not Just Retail Investors Having a Good Time
In this new share offering frenzy, institutions are the real players:
1. Early VC Investments: For instance, Xiangfeng Investment invested in Yushu Technology (the first stock in the humanoid robotics sector) 6 years ago and has now seen a return of over 100 times. Sequoia China held a 7.11% stake in Yushu Technology before its IPO and made substantial profits after the stock went public.
2. Strategic Placements: Public funds, social security funds, and insurance companies lock in a portion of the new shares (about 20% of the total issuance) in advance. Although there is a lock-up period of 12 to 36 months, the long-term returns can be substantial. For example, in Yushu Technology’s strategic placement, A-class institutions (public funds and social security funds) received more than 85% of the offline issued shares.
3. Offline New Share Offerings: Institutions can obtain new shares through offline bidding, eliminating the need to rely on lotteries. As long as they meet the requirements, they can secure their share of the new shares, resulting in stable returns.
Local state-owned assets are also participating. For example, Hefei invested in Changxin Technology, which not only boosted the local semiconductor industry but also benefited from the capital appreciation after the company went public. However, this model requires significant financial resources and is only feasible in economically strong cities.
III. Why Are New Share Offerings So Profitable This Year? The Change in Valuation Logic
In the past, new share offerings were seen as low-risk, small-scale lotteries, with returns of a few thousand to tens of thousands of yuan considered good. This year’s higher returns are mainly due to a change in the market’s valuation logic for technology companies:
- Previously, investors focused on whether a company could generate profits immediately (based on factors like profits and revenue).
- Now, they are more interested in the company’s potential for future growth (such as its technological barriers and industry trends).
Companies like Fenzhun Laser, which produce high-end laser equipment, and Yushu Technology, a leader in humanoid robotics, represent the “hard technology” sectors that investors are currently pursuing. Investors are willing to pay a higher price for their potential growth.
IV. Are New Share Offerings Always a Sure Win? Risks Cannot Be Ignored
Despite the high returns this year, new share offerings are not risk-free:
1. Underpricing Risk: For example, the stock of NIO in the Hong Kong market fell below its issue price upon listing in 2022. In the A-share market, popular new stocks could also experience price declines if market sentiment turns negative.
2. Financial Pressure: Buying a large number of shares (e.g., more than 500 shares) can be a significant financial burden for retail investors. If the stock price drops after listing, they could lose their investment.
3. Return Volatility: Investors may sell their shares to lock in their profits, but if the stock price fluctuates significantly on the first day of trading, their profits could be reduced.
4. Lock-up Period for Institutions: Institutions participating in strategic placements must wait 1 to 3 years before selling their shares. If the company’s performance declines during this period, they may not make a profit or could even suffer losses.
V. The Backstory of the New Share Offering Craze: A Sign of a “Golden Age” for the Technology Industry
This surge in new share offerings reflects the rise of the technology industry:
- The influx of capital into sectors like AI, semiconductors, and robotics indicates that the market believes these areas will drive future economic growth.
- Both retail and institutional investors are willing to invest in technology companies, demonstrating confidence in “hard technology.”
- Local state-owned assets’ involvement in the technology industry (such as Hefei’s investment in Changxin Technology) shows that policies are supporting technological advancement.
However, this enthusiasm could also lead to bubbles. If companies do not have genuine technological breakthroughs and are merely riding on the trend, they may eventually be eliminated by the market. Therefore, when participating in new share offerings, it is important to consider both the sector and the company’s actual capabilities.
In summary, the “wealth effect” of new share offerings this year is impressive, but it is driven by changes in the technology industry and valuation logic. For retail investors, participating in new share offerings can be profitable, but it requires a rational approach. It is essential to choose companies with real potential and to manage risks carefully, as the goal is to avoid losing the principal investment.