CXMT is sparking fears of a cash drain before blockbuster IPO

The massive listing of ChangXin Memory Technologies is raising fears that its launch could drain cash from Chinese stocks, as investors raise funds to buy a piece of the country’s largest memory chip maker.

The Shanghai STAR Market listing, expected on July 27, has become the latest focus for investors after Chinese technology stocks pulled back in recent sessions. CXMT raised $8.6 billion in Asia’s largest IPO so far this year.

Tim Sun, senior researcher at financial services firm HashKey Group, said the listing has reinforced concerns about a liquidity crunch as investors expect CXMT’s valuation to quickly surpass 1 trillion yuan ($139 billion) after the listing.

“Once it exceeds 1 trillion yuan, CXMT will become the primary heavyweight on the STAR Market and semiconductor indices, forcing index funds, active funds and sector-specific funds to reallocate to it,” Sun said.

Investors are therefore repositioning ahead of time, putting pressure on sectors that previously led the rally, including memory chips, semiconductor equipment and domestic substitution plays.

The STAR 50 Index, which tracks the largest and most liquid companies listed on Shanghai’s tech-focused STAR Market, fell almost 20% this quarter.

Peter Alexander, founder of Z-Ben Advisors, also said preparations for the IPO are drawing money from the secondary market. “There is no doubt that capital was withdrawn from the market in preparation for the IPO of (CXMT) shares.”

Alexander expects strong initial demand, saying the stock could see a “marked jump in share prices on the first day of trading, perhaps even the second day,” before both shares and the broader market settle into a “new equilibrium.”

However, analysts stressed that while the IPO was an “elevating factor” that exacerbated the decline, it was not the root cause.

“The main reason for this pullback lies in crowded positioning and high leverage levels in the A-share technology sector,” Sun said, adding that the correction in Korean chip stocks was reflected in global semiconductor valuations and triggered profit-taking in China.

Benjamin Cavender, managing director at CMR Consulting, said that given its size, it was “plausible” that the deal would have a short-term liquidity impact, particularly among STAR Market and semiconductor and AI stocks. However, “CXMT may be acting as a catalyst that intensifies an existing concern rather than being the primary cause of the sell-off.”

The phenomenon is similar to the “cash call” effect seen in large IPOs, where investors leave listed companies to raise cash for highly anticipated offerings, Cavender said. China is particularly vulnerable due to its large retail investor base and lottery-style IPO allocation system, he added.

China’s stock market is dominated by retail investors, who account for about 90% of daily trading, compared to around 25% in the United States, according to HSBC.

Cavender said the direct liquidity impact would be temporary, with cash likely returning to the market once allocations are completed and trading begins. But a series of major IPOs could have a much longer-lasting impact.

“If investors conclude that the market will need to absorb a steady pipeline of giant semiconductor, AI and national champion offerings, then the impact could last longer — not because an IPO would permanently eliminate liquidity, but because it would shift the supply-demand balance for high-growth Chinese stocks,” Cavender said.

Counterpoint Research, meanwhile, looks at the IPO through a longer-term industry lens. The firm expects the capital raised to accelerate CXMT’s capacity expansion and strengthen its position in the global memory market.

While the listing could temporarily reshape capital flows, it also signals the emergence of a significant new competitor in dynamic random access memory, or DRAM, a type of semiconductor memory used to temporarily store data while computers, smartphones and AI servers are running.