CXMT IPO in China raises cash-drain concerns before Shanghai debut

The CXMT IPO in China is becoming a pressure point for local tech stocks as investors free up cash ahead of the memory chipmaker’s Shanghai debut. For retail investors watching China’s chip trade, the issue is straightforward: a very large new listing can pull money away from already traded stocks, at least for a while.

ChangXin Memory Technologies, China’s largest memory chipmaker, is expected to list on the Shanghai STAR Market on July 27, according to CNBC. The company raised $8.6 billion in what CNBC described as Asia’s largest initial public offering so far this year.

An initial public offering, or IPO, is when a company sells shares to public investors for the first time. The STAR Market is Shanghai’s board for science and technology companies, similar in purpose to a venue built for high-growth firms.

Analysts cited by CNBC said the size of the deal is adding to concerns that investors are selling other Chinese equities to prepare for CXMT’s first day of trading. That can create a short-term liquidity drain, meaning less cash is available to support shares already listed on the market.

Why is the CXMT IPO pressuring Chinese tech stocks?

Tim Sun, senior researcher at HashKey Group, told CNBC that investors expect CXMT’s market value to quickly move above 1 trillion yuan, or about $139 billion, after listing. Sun said that kind of size would make CXMT a major stock in the STAR Market and semiconductor indexes, which could push index funds, active managers and sector funds to shift money toward the new name.

That expected shift has led some investors to adjust portfolios before the listing, CNBC reported. The pressure has hit areas that had previously been popular in China’s tech rally, including memory-chip names, semiconductor equipment companies and domestic replacement plays.

The STAR 50 Index, which follows the biggest and most liquid companies on Shanghai’s STAR Market, has fallen nearly 20% this quarter, according to CNBC.

Peter Alexander, founder of Z-Ben Advisors, told CNBC that money is being pulled from the market ahead of CXMT’s listing. He also said demand could be strong early, with the stock potentially rising sharply on its first trading day and possibly the next, before CXMT and the wider market find a steadier level.

Other analysts told CNBC that the IPO is making the sell-off worse rather than causing it alone. Sun pointed to crowded positioning and high leverage in China’s A-share technology sector. Leverage means investors are using borrowed money, which can deepen declines when prices move against them. Sun also said weakness in Korean chip stocks has affected global semiconductor valuations and encouraged profit-taking in China.

Benjamin Cavender, managing director at CMR Consulting, told CNBC it is plausible that CXMT is creating a near-term cash effect, especially in the STAR Market and among semiconductor and AI shares. He said the deal may be concentrating worries that were already present.

Cavender compared the move to a cash-call effect around major IPOs, when investors sell listed stocks to raise funds for a sought-after new offering. He added that China is more exposed to this pattern because retail investors dominate trading and IPO allocations often work like a lottery. HSBC says retail investors account for roughly 90% of daily trading in China, compared with about 25% in the U.S., according to CNBC.

Cavender said the immediate liquidity impact should fade after IPO allocations are finished and trading starts. He added that a longer run of large semiconductor, AI and national-champion offerings could have a more lasting effect by changing the supply-and-demand balance for high-growth Chinese stocks.

Counterpoint Research took a longer-term view, according to CNBC. The firm expects the IPO proceeds to help CXMT expand capacity and strengthen its position in global memory chips.

CXMT is a competitor in DRAM, or dynamic random-access memory. DRAM is the short-term memory used by computers, smartphones and AI servers while they are running, making it a key component in the broader chip supply chain.

This story draws on original reporting from CNBC.