They propelled a little-known semiconductor manufacturer to a 521 percent surge, traded a mid-sized railway company 13 times more feverishly than the world’s largest bank and valued a chipmaking-gear producer at an eye-watering 730 times earnings.
Chinese investors yesterday greeted the opening of the country’s NASDAQ-style stock market with a frenzied burst of trading, driving gains in all 25 companies that made their debut.
The stocks posted an average surge of 140 percent at the close in Shanghai, with most slipping from their intraday highs.
Photo: AP
About 48.5 billion yuan (US$7.1 billion) in shares traded on the SSE STAR Market board, or about 13 percent of the volume for the rest of the market.
The STAR Market is China’s latest attempt to avoid losing the next Alibaba Group Holding Ltd (阿里巴巴) or Tencent Holdings Ltd (騰訊) to exchanges in New York City or Hong Kong.
Endorsement from top officials helped generate such enthusiasm that firms raised a combined US$5.4 billion, about 20 percent more than planned.
Demand from retail investors has outstripped supply by an average 1,800 times, even as some analysts voiced concern over lofty valuations.
“Gains were much stronger than expected, either due to unreasonable IPO [initial public offering] pricing or speculative trading,” said Zhu Junchun, a Shanghai-based analyst with Lianxun Securities Co (聯訊證券). “It’s going to be a liquidity game in the first half year or one year of trading. Judging by the trading activity and gains on the board, it’s definitely a success.”
The board is also a testing ground for regulators, who have waived rules on valuations and debut-day price limits for the first time since 2014.
The venue is the only one in China to welcome companies that have yet to make a profit, as well as shares with unequal voting rights.
The Shanghai Stock Exchange is to create an index tracking the firms about two weeks after the 30th listing starts trading.
Shares on the STAR board have no daily price limits for the first five trading days, followed by a 20 percent cap in either direction.
To limit volatility, the venue suspends activity for 10 minutes if a stock moves by 30 percent and then 60 percent from the opening price in the first five trading days, a wider band than the rest of the stock market.
Only certain qualified foreign investors can buy the stocks directly, as there is no access through trading links with Hong Kong.
The first batch of listings included China Railway Signal & Communication Corporation Ltd (中國鐵路通信信號), whose Hong Kong shares sank on huge volume as traders switched into the A-shares.
Advanced Micro-Fabrication Equipment Inc (中微半導體設備), which was the most expensive listing of the batch, jumped as much as 331 percent. Its 171 multiple compared with an average of 53 times for the group, and 33 for similar stocks on other Chinese venues.
Despite the hype, there are questions about whether the excitement will give way to the lukewarm sentiment that is blanketing the world’s second-largest equity market.
On the other hand, a sustained period of ultra-high demand risks draining funds from other exchanges, where volumes are shrinking.
The Shanghai Composite Index yesterday fell 1.3 percent, while the ChiNext Index was down 1.7 percent.
It is not the first time China has sought to create an alternative venue for smaller companies.
The ChiNext board was launched in Shenzhen almost a decade ago with fewer listing requirements than the main venues.
The tech-heavy exchange was at the center of a spectacular boom and bust in 2015 that burned hordes of novice traders.
Officials will be keen to avoid such extreme volatility — the ChiNext remains more than 60 percent below its peak four years ago.
“I’m not going to participate in the STAR board anytime soon,” Acroguardian Investment Co managing director Qu Shaohua (屈少華) said. “With prices at these levels it will take quite a long time for the market to fully digest the current valuation and adjust to a reasonable price.”
The STAR board’s launch dovetails with Beijing’s pledge to boost direct financing for companies struggling to raise funds, and has taken on added significance as heightened trade tensions with the US threaten China’s technology supply chain.
“I would say that the launch is a success,” Northeast Securities Co (東北證券) analyst Fu Lichun (傅立春) said. “People are indeed quite enthusiastic, and maybe got a little over-excited at the open.”
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