The latest artificial intelligence listings in China are achieving remarkable increases.
Shares of chipmaker MetaX Integrated Circuits surged nearly 700% during their debut in the Shanghai market last week, while Moore Threads soared over 400% on its first trading day earlier this month.
As domestic investors seek to capitalize on noteworthy Chinese tech listings, international investors find themselves largely excluded from these blockbuster offerings.
Particularly, foreign retail investors are unable to participate in mainland China IPOs: “It’s not even possible. Unless they register an account with a Chinese broker,” stated Chris Zhang, executive director at China Fortune Securities Company.
Opening an onshore brokerage account with a Chinese securities firm necessitates a linked Chinese bank account, which generally requires proof of residency in China or a Chinese visa with adequate validity. Additionally, foreigners need to already possess other mainland-listed shares to qualify for IPO lotteries.
Many foreign banks lack the necessary partnerships with Chinese brokers to facilitate account openings, according to Zhang, rendering the process unfeasible for the overwhelming majority of overseas retail investors.
Official guidance from Shanghai’s city government indicates that only a limited group of foreign individuals are permitted to directly open brokerage accounts for A-shares — stocks listed in mainland China. For instance, foreigners holding permanent resident status, employed in China, or those working overseas with equity incentive plans in A-share listed firms.
For numerous global investors, Stock Connect, a scheme allowing reciprocal access between Hong Kong and mainland Chinese exchanges, serves as the most convenient method to gain exposure to Chinese equities.
It enables international investors to purchase A-shares through their Hong Kong brokers without requiring an onshore account or special licenses — but the initiative offers minimal assistance regarding IPOs or newly listed stocks. Access also relies on eligibility criteria set by Hong Kong brokers, including minimum account balances and risk disclosures.
“Stock Connect is ineffective because newly listed stocks are not yet included in Stock Connect. Typically, it takes several weeks to months for the stocks to qualify,” remarked Theodore Shou, chief investment officer at Skybound Capital.
The inclusion of companies in the Stock Connect program is contingent upon a stock fulfilling eligibility criteria such as sufficient trading volume and market capitalization, often necessitating a trading period and data history for qualification.
Exposure for Institutions
Northbound trading, which refers to overseas and Hong Kong investors acquiring mainland Chinese stocks through Stock Connect and other initiatives, will typically not be accessible until “several months after any listing,” noted Shou. Moreover, it’s not assured that Moore Threads and MetaX will be included.
International retail investors can gain limited access through offshore funds that invest in A-shares.
Foreign retail investors interested in STAR Market IPOs, such as Moore Threads and MetaX, can consider investing in non-China domiciled funds that target A-shares, which generally participate in IPOs, according to Shou.
China’s STAR Market operates as a Nasdaq-style tech board in Shanghai, focusing on strategic sectors such as semiconductors, AI, and biotech, with more relaxed profitability criteria and restricted access for foreign retail investors.
“Nevertheless, such participation will be indirect, quite restricted, and largely insignificant,” he cautioned, as IPO allocations may be minimal relative to the fund’s total assets.
While foreign retail investors face significant barriers to accessing mainland Chinese IPOs, some large institutions retain the ability to engage in them.
A program designed for qualified foreign institutional investors, or QFIIs, permits approved global institutions to directly invest in onshore Chinese stocks, including IPOs. However, it is tailored for significant asset managers, sovereign funds, and banks, rather than individual investors.
QFIIs include investment banks like Morgan Stanley and Goldman Sachs, along with central banks, among numerous other entities.
The QFII and renminbi QFII frameworks allow authorized institutional investors to trade onshore A-shares and engage in IPOs, though they must receive approval from the China Securities Regulatory Commission, with foreign-exchange registration and settlement managed by the State Administration of Foreign Exchange, or SAFE.
While the QFII and RQFII systems in China do not impose explicit asset size or operating history requirements, applicants must be institutions that demonstrate solid financial stability, pertinent investment experience, strong governance, compliance frameworks, and an unblemished regulatory record.
Additionally, they must appoint an onshore custodian and finalize foreign-exchange registration with SAFE.
The CSI 300 Information Technology Index, which tracks the performance of information-technology firms within China’s CSI 300, has risen 32% year to date, in contrast with the benchmark CSI 300, which is up 17%, and Hong Kong’s Hang Seng Tech Index, which has achieved a 24% increase thus far this year.
