FT : Burford: Argentina win helps vindicate valuation practices

Burford: Argentina win helps vindicate valuation practices
Successful court case will not be enough to lure in investors wary of litigation as an asset

Argentine writer Jorge Luis Borges said that reality was not always what might seem probable or likely. Litigation financier Burford demurs from that view, investing in whichever side of a legal case it deems most likely to win.

A favourable recent ruling for plaintiffs against the renationalisation of Argentine energy group YPF in 2012 has given a flavour why. Burford shareholders could be in line for a multibillion-dollar payout. Shares have risen by two-thirds in response, taking them close to four-year highs.

That reflects the volatility of stocks in a field of financing that is fast growing but controversial. Shares in London-listed Burford halved in 2019 following an attack by short seller Muddy Waters.

The group now manages $5bn worth of assets. These are legal cases that it finances from its own balance sheet and investor funds. But valuations depend in part on Burford’s own expectations of success.

The YPF win provides some validation. But it will not be enough to lure in investors wary of the opacity and complexity of litigation as an asset. Financing conditions are getting tougher; spreads on Burford dollar bonds due in 2025 have widened by more than 100 basis points over the past year and now trade in line with junk.

Burford has invested about $60mn dollars in the YPF case. When a 20 per cent stake in the claim traded hands in 2019, it was worth about $1bn. Burford then valued the remainder at almost $800mn 

Reduced legal risk following the recent court win makes it worth much more; between $3.2bn and $6.4bn to Burford, thinks Jefferies.

Burford could monetise further, by selling more of its share in the claim. Such a cash injection might be needed. Burford’s debt pile grew to $1.26bn last year.

The problem for all promoters of uncorrelated assets is that demand for risk remains correlated to wider conditions. The end of the cheap money era may make unconventional investments — litigation finance, for example — harder to fund.

>>> US Research Calls

Research Calls

  • Upgrades:
    • American Homes 4 Rent (AMH) upgraded to Outperform from In-line at Evercore ISI; tgt $36
    • AvalonBay (AVB) upgraded to Outperform from In-line at Evercore ISI; tgt $194
    • Catalent (CTLT) upgraded to Buy from Hold at Deutsche Bank; tgt raised to $88
    • Emergent BioSolutions (EBS) upgraded to Buy from Hold at The Benchmark Company; tgt $22
    • Kemper (KMPR) upgraded to Outperform from Neutral at Credit Suisse; tgt raised to $78
    • McDonald's (MCD) upgraded to Buy from Neutral at Northcoast; tgt $321
    • NetApp (NTAP) upgraded to Buy from Hold at Stifel; tgt $75
    • Northern Trust (NTRS) upgraded to Neutral from Underweight at JP Morgan; tgt lowered to $96.50
    • SiteOne Landscape Supply (SITE) upgraded to Buy from Hold at Loop Capital; tgt $155
    • Sociedad Quimica y Minera (SQM) upgraded to Neutral from Underperform at BofA Securities; tgt lowered to $85
    • TFI International (TFII) upgraded to Positive from Neutral at Susquehanna; tgt lowered to $135
    • Weyerhaeuser (WY) upgraded to Buy from Neutral at DA Davidson; tgt raised to $35
  • Downgrades:
    • Block (SQ) downgraded to Mkt Perform from Outperform at Keefe Bruyette; tgt lowered to $75
    • Cushman & Wakefield (CWK) downgraded to Neutral from Buy at Goldman; tgt lowered to $11
    • Essex Property (ESS) downgraded to In-line from Outperform at Evercore ISI; tgt $236
    • ICICI Bank (IBN) downgraded to Buy from Conviction Buy at Goldman
    • Incyte (INCY) downgraded to Sector Perform from Outperform at RBC Capital Mkts; tgt lowered to $79
    • Norfolk Southern (NSC) downgraded to Buy from Conviction Buy at Goldman; tgt lowered to $257
  • Others:
    • Clearwater Analytics (CWAN) initiated with an Outperform at MoffettNathanson; tgt $19.50
    • Excelerate Energy (EE) initiated with a Buy at Deutsche Bank; tgt $31
    • Fiverr (FVRR) initiated with a Buy at BTIG Research; tgt $50
    • GE HealthCare (GEHC) initiated with a Neutral at BTIG Research
    • Ingersoll-Rand (IR) placed on 90-Day Upside Catalyst Watch
    • New Fortress Energy (NFE) initiated with a Buy at Deutsche Bank; tgt $60
    • Rallybio (RLYB) initiated with an Outperform at Wedbush; tgt $17
    • Ribbon Communications (RBBN) initiated with a Mkt Outperform at JMP Securities; tgt $6
    • Southwestern Energy (SWN) initiated with a Hold at Siebert Williams Shank; tgt $6
    • Warner Bros. Discovery (WBD) initiated with a Buy at Truist; tgt $19
    • Xometry (XMTR) initiated with a Mkt Outperform at JMP Securities; tgt $20

>>> US Gapping down

Gapping down
In reaction to earnings/guidance
:

  • AUDC -10.9% (guidance), WDFC -4.8%, IMOS -4.7% (Q1 revs), TSM -1.2% (Q1 revs), UMC -0.5% (March revs)

Other news:

  • TUP -12.8% (takes action to improve capital structure and liquidity position)
  • CRNC -4.8% (Chief Technology Officer Prateek Kathpal has notified Cerence of his decision to resign effective as of May 8, 2023, in order to pursue another opportunity)
  • COF -3.5% (Walmart terminates credit card partnership agreement)
  • FRC -3.3% (discloses that it suspended payment of the quarterly cash dividend on each series of the bank's outstanding noncumulative perpetual preferred stock)
  • AZUL -2.8% (reports March 2023 traffic)
  • TSLA -2% (lowered prices, also plans to expand use of iron-based batteries in Semi electric trucks and an affordable EV, according to Reuter)

Analyst comments:

  • IBN -1.5% (downgraded to Buy from Conviction Buy at Goldman)
  • CWK -1.2% (downgraded to Neutral from Buy at Goldman)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance
:

  • GBX +7.6%

Other news:

  • LFCR +5.4% (completes sale of its Curation Foods' assets related to the O Olive Oil and Vinegar business for $6.23 million)
  • GLOP +2.8% (enters into definitive merger agreement pursuant to which GasLog (GLOG) will acquire all common units of partnership not beneficially owned by GasLog for total consideration of $8.65/unit)
  • SCHW +2.7% (Founder and CEO provide commentary on the industry)
  • VTLE +2.3% (sees Q1 production above guidance)
  • CUTR +2.2% (acknowledges receipt of special meeting demand from Daniel Plants)
  • MSGS +2% (announces the combination of Counter Logic Gaming)
  • MRNA +2% (MRNA-4157/V940 in combination with KEYTRUDA (MRK), receives prime scheme designation from the European Medicines Agency)
  • AMPY +2% (received the required approvals from federal regulatory agencies to restart operations at the Beta Field)

Analyst comments:

  • CTLT +3% (upgraded to Buy from Hold at Deutsche Bank)

The New Yorker : On “Succession,” Everything Is Up in the Air

On “Succession,” Everything Is Up in the Air
The heart of “Connor’s Wedding,” as the most recent episode is titled, is a protracted phone call from airplane to yacht lounge.

The trailer for this week’s episode of “Succession” promised another set-piece Roy wedding—this time that of Connor Roy, the eldest and oftenest-overlooked of Logan Roy’s four children, and his ever-blonder, ever more couture-clad bride-to-be, Willa. The setting: a yacht in New York Harbor decked with red-white-and-blue bunting, providing free media hoopla for Connor’s Presidential campaign, a one-per-cent bid in every sense of the term. The tricky confluence of timing: the shaky culmination of Logan’s deal with GoJo’s Lukas Matsson, which—thanks to the three younger Roy children seeking to squeeze more money out of the deal—Logan is now obliged to fly to Stockholm to secure. “Today’s the day,” Logan says in the trailer, as he boards the plane with Tom Wambsgans, his son-in-law and lieutenant of the moment. “Strategic refocus. Clean out the stalls. A bit more aggressive.”

Actually, that would be “a bit more fncking aggressive”—the opening moments of the episode, which broadcast on Sunday night, revealed that the line had been cleaned up for the promo. And those would be Logan’s final words—at least the last ones that viewers of “Succession” will hear him deliver. Fifteen-odd minutes into the episode, after the Roy offspring have gathered aboard the wedding boat, Tom calls the siblings: their father has been taken ill in the bathroom of the P.J. “It’s very, very bad,” Tom says. Logan is dying—or quite possibly has already died, but, without a medical professional present, who can say for sure?—at thirty thousand feet above the Eastern Seaboard.

When Jesse Armstrong, the show’s creator, admitted earlier this year that this season would be “Succession” ’s last, he reminded those who might want the show to unspool forever that “there’s a promise in the title”—somewhere along the line, in one way or another, Logan Roy was always going to surrender control of the company. The previous seasons showed Logan dangling the prize in front of each of his three younger children successively—Connor, of course, never got a look-in—before deciding to sell to Matsson, his heir of choice. Last week’s episode suggested that, rather than retiring to the golf course or some equivalent anteroom of mortality, Logan might build himself another empire within the newsroom of ATN. (“You’re fncking pirates!” Logan roared at his staff in the episode, all Henry V on St. Crispin’s Day.) Instead, mortality has made itself felt at the most inconvenient of moments. The deal with Matsson, like Logan’s plane, is up in the air; and the Roy siblings, as Connor’s love boat casts off from its East River pier, are literally unmoored.

Speaking on Friday, two days before the show’s airing, Armstrong acknowledged that, with seven episodes still to come, the timing of Logan’s death would likely be a shock to the audience. “I want the show to be organic and connected to reality,” he told me. “The business stuff that plays out across all the seasons is reflective of the real world—people who work in media and finance would recognize it as the shape of things that are happening, and a lot of the show is the playing out of the personal and bureaucratic dynamics within those structures. But that’s not all of life. Also, we get hit by unexpected events. So how do you make the authorial decision to make a thing happen?” He went on, “We once had a therapist jump into a swimming pool and break his teeth—that’s an unusual thing to happen that didn’t have to happen. And, on the bigger end, sometimes people die, and it’s a bit of a decision when that happens.”

Logan’s death does come as a surprise, as death so often does. But it’s also been intimated from the very first episode of the series, when, not long after his eightieth birthday, Logan experiences a brain hemorrhage while negotiating with his kids during a helicopter journey. There have been subsequent health scares: the funny turn he experienced while hiking around Josh Aaronson’s private island in the fourth episode of Season 3, followed, in the next episode, by a U.T.I.-induced bout of psychosis. The frailer Logan gets, the more fiercely he growls. Even the green juice supplied in a previous episode by Kerry, Logan’s “friend, assistant, and adviser,” is not enough to delay the boss’s scheduled appointment with the ultimate regulator in—as it were—the sky.

The heart of “Connor’s Wedding,” as the episode is titled, is a protracted phone call from airplane to yacht lounge. During the call, the Roy siblings learn, first, that their father has been stricken, then grow cognizant that he has been struck down. The scene ran for twenty or thirty pages, Armstrong explained, and the cast and crew filmed it at least once in a single take. “I was keen on doing it by phone call, because that’s so often how we get news, and people can be a bit adrift if you are in a different physical space from the drama of whatever is unfolding,” he said. The device allows Armstrong and his director, Mark Mylod, to dramatize the uncertainty: the viewer, like the Roy siblings, is kept at a distance from the crisis. Mylod refrains from depicting Logan’s final moments explicitly, and Armstrong’s script amplifies the way in which the experience of an intimate’s death is both utterly ordinary and entirely surreal: “The plane people are lovely, they’re good people. I think he’s—I think they’ve made him very comfortable” is how Tom characterizes the already expired Logan to his children. Each of the three younger Roys gets a harrowing moment with the phone held up to their insentient father’s ear—an opportunity to speak their own final words to the man who is undertaking this transatlantic journey only because the three of them have essentially forced him to do it. The possibility that one sibling or another will push their father to a physical breaking point has been an oft-repeated theme in the show. Finally, they’ve all done it, together.

Killing Logan off in Episode 3 came at one substantial cost: the loss of Brian Cox as a central character for the remainder of the series. “That was my one regret about doing it, the slightly personal feeling of him not being there all through the journey,” Armstrong said. “Though, as you’ll see in later episodes, his presence is sort of felt throughout the season.” But, Armstrong explained, the death had to come now in order to make it feel organic. “Part of making it embedded in the show was not putting it at Episode 9, because then we’re creating a narrative whereby death is somehow the thing that happens as the bitter cherry on the cake of the show, and I think that wouldn’t be quite right, because that’s not how the shape of life is,” he said.

One of Armstrong’s guiding observations while creating “Succession” has been to note how quickly individuals adapt even to dramatically changed circumstances. (The table read for the pilot was held on the day of the Presidential election in 2016, followed in the evening by what was expected to be a celebratory gathering. The election result was, Armstrong told me for a Profile, in 2021, “such a shock—then five, ten minutes later, everyone’s living in a new reality . . . quite oriented towards how it affects them, and what they will do next.”) The children’s individual, immediate reactions to the reality of their father’s death are distinct and unpredictable, as children’s reactions to a parent’s death so often are. Shiv’s tough carapace dissolves at first: she whimpers with pain as she registers that her brothers failed to get her to the phone fast enough. But when she is asked, after Logan’s plane lands at Teterboro Airport, whether she wants to see the body, she declines. “He’s not going to get angry if we don’t,” she says, her face a mask of anguish. Roman, too, reverts to childishness, sitting on the floor of the yacht’s lounge rather than taking an armchair. Before he, alone of the siblings, goes to see Logan’s body on the jet, he removes the jacket, which, in the course of the show’s several seasons, he has started to wear as the costume of adulthood. By the time he descends the plane’s staircase, following the E.M.T.s who bear the lumpish, blanket-swaddled form of his father’s corpse strapped to a gurney, Roman has lost the jacket entirely, and is back in his vulnerable shirtsleeves.

Connor, whose wedding has been royally fncked, blurts out his own painful truth: “Oh, man, he never even liked me.” Then he goes ahead with his vows to the woman who is honest enough to admit when pushed that, yes, “there is something about money and safety” as her reason for marrying him. Meanwhile, Kendall—who is better acquainted with death than any of his siblings, having caused the drowning of a waiter at the end of the first season, and by nearly drowning himself toward the end of the third—shows an instinct for self-interest that is, in the end, as Logan-like as anything he has ever done. “What we do today will always be what we did the day our father died,” Kendall tells Shiv and Roman. “So let’s grieve and whatever, but not do anything that restricts our future freedom of movement.” A bit more fncking aggressive indeed.

WSJ : Auditors Didn’t Flag Risks Building Up in Banks

Auditors Didn’t Flag Risks Building Up in Banks
Bond losses such as those at Silicon Valley Bank could have been raised as ‘critical audit matters’

When KPMG LLP gave Silicon Valley Bank a clean bill of health just 14 days before the lender collapsed, the Big Four audit firm flagged potential losses on loans as a so-called critical audit matter. But the audit opinion was silent on what actually brought down the bank—its unrealized bond losses and ability to hold them given a reliance on potentially flighty deposits.

“The auditors failed to mention the fire in the basement or the box of dynamite on the first floor, but they did point out the peeling paint on the flower box,” said Erik Gordon, a University of Michigan business professor. “How could they miss the interest-rate risk?”

The current banking crisis is the first big test of critical audit matters, a measure designed to help investors decode risks and uncertainties buried in financial statements.

Audit regulator the Public Company Accounting Oversight Board introduced critical audit matters in 2017 to “breathe life into the audit report.” Described as the biggest shake-up in audits in 70 years, the new standard was meant to make audit opinions more useful to investors.

So far, though, critical audit matters have failed to shed light on issues that have caused a collapse of confidence among depositors and investors in many small and midsize banks.

Auditors are required to record any critical audit matters when they sign off on a public company’s books. Regulators define these as matters that have a significant impact on the financial statements and involve “especially challenging, subjective or complex” judgments by the auditors.

Silicon Valley Bank’s unrealized losses in its bond portfolio appear to “meet every definition of a possible critical audit matter,” said Martin Baumann, a former chief auditor at the PCAOB who had a leading role in designing the new measure.

The latest banking crisis has exposed the gamble some banks took in betting heavily on long-term government bonds, which last year plunged in value as the Federal Reserve raised interest rates.

Banks can keep these losses off their books by classifying their bond holdings as “held to maturity,” or intended never to be sold, allowing them to be held at cost rather than fair value. The banking industry last year relied more heavily on this accounting maneuver, as rising rates pummeled balance sheets.

Accounting rules say banks can classify bonds as held to maturity only if they have both the intent and ability to hold on to them, rather than having to sell them to meet demands for withdrawals. For well-capitalized banks, that likely isn’t a tough judgment call to make.

But it’s a much more nuanced issue for many of the lenders at the center of the latest banking crisis. Unlike the biggest banks, smaller banks are largely reliant on deposits for funding, which can prove flighty in stressed times, calling into question a bank’s ability to indefinitely hold long-term assets.

The parent of Silicon Valley Bank, SVB Financial Group, had $91 billion of held-to-maturity bonds on its Dec. 31 balance sheet, which a footnote said had a fair value of just $76 billion. That $15 billion loss was big enough to wipe out most of the bank’s total equity of $16 billion at year-end.

The lender’s total deposits had shrunk from the previous year, its financial statements showed. What’s more, its reported cash was only around 8% of total deposits, heightening the risk it would need to sell long-term assets if significant numbers of its depositors left.

That appears to tick all the boxes for the auditor to highlight this issue as a critical audit matter. “The judgment as to whether or not Silicon Valley Bank had the ability to hold these securities to maturity was certainly a complex question, it was material to investors, and it’s hard to see how liquidity was not a matter for discussion with the audit committee,” said Mr. Baumann, who is also a former senior partner at Big Four audit firm PricewaterhouseCoopers.

“I’m not the auditor of the bank and I don’t know if this [bonds issue] should have been included in the auditor’s report,” he added. “But as the lead author of the standard, this certainly is the kind of item that we had in mind for critical audit matters.”

Representatives of the accounting industry pushed back on suggestions auditors should have sounded the alarm ahead of the crisis. Dennis McGowan, vice president of professional practice at the Center for Audit Quality, said accounting standards don’t require companies to anticipate “extremely remote” scenarios in deciding whether they can classify bonds as held to maturity.

“Some of what’s happened could not have been anticipated. Social media fueled the withdrawals from one bank, for example,” Mr. McGowan said. “Auditors don’t have a crystal ball to anticipate that kind of thing.”

KPMG’s audit of Silicon Valley Bank could be tested in court if shareholders decide to include the firm in the likely lawsuits.

“The lack of a relevant critical audit matter and of a going concern are going to come up if it comes to litigation,” said Jack Castonguay, an accounting professor at Hofstra University. He added that it was difficult to judge KPMG’s audit without seeing the firm’s work papers or knowing what risks it discussed with SVB’s audit committee.

A KPMG spokesman declined to comment. In response to a request for comment to SVB’s successor bank, a spokeswoman for the Federal Reserve cited the regulator’s description of the bank’s failure as a “textbook case of mismanagement.” She declined to comment on KPMG’s audit of the lender.

Auditors’ apparent blind spot on the interplay of interest-rate and liquidity risks isn’t confined to Silicon Valley Bank.

Auditors for nine other U.S. banks most exposed to bond losses also didn’t flag this as an issue when they signed off on the financial statements for 2022, according to an analysis by The Wall Street Journal

The Journal reviewed the audit opinions for the 10 small to midsize U.S. banks that last year reported the highest losses on held-to-maturity securities as a proportion of their shareholder equity, based on data from research-firm Calcbench. Silicon Valley Bank ranked second on the list.

None of the auditors included a critical audit matter related to the bank’s treatment of the bonds. Instead, nine of the 10 reported a critical audit matter for estimated losses from loans or other bad debts. That is the risk that brought down banks in the 2008 financial crisis. Auditors didn’t report any critical audit matter for one of the banks, the analysis found.

A PCAOB spokeswoman declined to comment on whether the lack of critical audit matters related to the latest crisis was a reflection of the effectiveness of the measure.

“Unfortunately CAMS have not been used as fully as we had hoped for,” the former regulator Mr. Baumann said.

Epoch Health : Switzerland Stops Recommending COVID-19 Vaccination

Switzerland Stops Recommending COVID-19 Vaccination

Swiss authorities have stopped recommending COVID-19 vaccination, including for people who are designated at high risk from COVID-19.

Switzerland’s Federal Office of Public Health now says that “no COVID-19 vaccination is recommended for spring/summer 2023.”

People designated at high risk also aren’t recommended to get a COVID-19 vaccine, authorities said.

Officials attributed the change to the number of citizens who have received a vaccine, recovered from COVID-19, or have received a vaccine and also enjoy natural immunity from post-recovery protection.

“Nearly everyone in Switzerland has been vaccinated and/or contracted and recovered from COVID-19. Their immune system has therefore been exposed to the coronavirus. In spring/summer 2023, the virus will likely circulate less. The current virus variants also cause rather mild illness,” Swiss health officials said.

Seroprevalence data from mid-2022 show that more than 98 percent of the Swiss population had antibodies against the COVID-19 virus, indicating that people had immunity from prior infection, vaccination, or both.

The Omicron coronavirus variant of the COVID-19 virus, which started circulating around the world in late 2021, causes less severe cases than its predecessor, Delta. The available COVID-19 vaccines have performed increasingly worse against Omicron and its subvariants, providing little or even negative protection against infection and quickly waning shielding against severe disease.

Swiss authorities nodded to the short-lived protection as they noted that people designated at high risk from COVID-19 can still receive a vaccine, despite the lack of recommendation, after consultation with their doctor.

“Vaccination may be wise in individual cases, as it improves protection against developing severe COVID-19 for several months,” they said.

People at high risk include those aged 65 or older and pregnant women.

In cases where a doctor recommends a vaccine, a shot should be given at least six months after the last shot or at least six months after the last known COVID-19 infection.

Because the vaccines are no longer being recommended, they’re no longer covered by the government. Instead, people will have to pay a fee to get vaccinated.

People who aren’t determined to be at high risk from COVID-19 can also get a COVID-19 vaccine but will have to pay a fee since they’re getting a vaccine that isn’t recommended, authorities said. Those at high risk who receive a shot recommended by the doctor won’t have to pay, as the vaccination will be covered by health insurance.

Vaccination could be recommended again for the fall of 2023, according to health officials.

The move by Switzerland follows a number of other countries that have stopped recommending COVID-19 vaccination for many people.

For example, England withdrew booster recommendations for healthy people younger than the age of 50, while Denmark stopped vaccinating the same population in 2022.

The World Health Organization in March stated that countries should consider factors such as cost-effectiveness when boosting certain populations, including healthy children, considering the “low burden of disease” presently seen.

“The public health impact of vaccinating healthy children and adolescents is comparatively much lower than the established benefits of traditional essential vaccines for children,” the organization stated.

Some countries, including the United States, continue advising a primary series for all unvaccinated, even though studies have found that the naturally immune enjoy high levels of protection.

FT : First batch of IPOs under new China listings rules surge on debut

First batch of IPOs under new China listings rules surge on debut
Triple-digit gains point to need for more reforms in country’s equity fundraising system, say experts

Shares in a number of Chinese companies soared more than 100 per cent on Monday, as the first batch of initial public offerings under a new streamlined listings regime debuted in Shanghai and Shenzhen.

The top gainers among the 10 new launches included Shenzhen CECport Technologies, an electronics distributor, whose shares rose as much as 239 per cent, and Shaanxi Energy Investment, a state-owned electricity group that raised Rmb7.2bn ($1.1bn) from its IPO and whose stock gained as much as 84 per cent.

But financial experts said the massive price gains recorded by the new listings pointed to the need for more comprehensive reforms to China’s equity fundraising rules.

“The fact that you have these ridiculous jumps on Day One clearly means companies are being undersold,” said Fraser Howie, an independent analyst and expert on China’s financial system. “This is still a process where there is tremendous [state] oversight and control.”

The new rules aim to streamline IPOs by allowing Chinese companies to debut on the main boards of the Shanghai and Shenzhen stock exchanges without first gaining regulatory approval. They also remove a limit that had capped the IPO price of a company’s stock at 23 times earnings per share and abolish a 44 per cent ceiling on first-day gains, although daily moves will be capped at 10 per cent after the first five sessions.

The latest listings reforms come with China already being the world’s most active market for IPO fundraising, with more than $14.5bn raised in the year to date, or more than four times the total on Wall Street, according to data from Dealogic.

Yi Huiman, chair of the China Securities Regulatory Commission, said at a Monday morning listings ceremony that the reforms represented “comprehensive and fundamental change” and that the first batch of IPOs was “another important milestone in the reform and development of China’s capital markets”.

However, the reforms to remove regulatory approvals and share price caps on the main boards of mainland stock exchanges — known collectively as a “registration-based listings system” — had already been rolled out since 2019 on China’s tech-focused boards, the Star Market in Shanghai and ChiNext in Shenzhen.

A surge in activity on these two boards over recent years reflects a push by policymakers to funnel IPO proceeds to sectors perceived as vital to national security and economic growth. Shanghai mayor Gong Zheng said on Monday that the new regulatory system would “forcefully push” China’s stock market towards better providing capital to priority sectors, as the Star and ChiNext boards already did.

Despite the removal of a formal requirement to obtain listings approval from the CSRC, local brokers say regulators still exert a powerful influence over which companies are granted access to Chinese capital markets. Earlier this year, the securities regulator told bankers it had identified several “red light” industries that should not be allowed to carry out equity fundraising on the main boards in Shanghai and Shenzhen.

Analysts said the triple-digit gains by the companies listing on Monday were likely to be unsustainable.

“It’s the same trading pattern seen with the launch of Star in Shanghai and ChiNext,” said Zhang Qi, an analyst at the Chinese brokerage Haitong Securities. Zhang said traders had bid up shares in the new listings on speculation that the companies enjoyed support from policymakers and that they “would go back to a more rational level after their debut”.