[Shenzhen] Growth board makes bubbly debut
2009-November-2 Source: Szdaily web edition
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Shares of the first batch of 28 companies that made their debut on the newly created growth board in Shenzhen, ChiNext, all surged strongly after the opening bell Friday (Oct 30), leading to at least one temporary suspension for each stock in trading after they broke through limits.

Shares in biological product manufacturer Anhui Anke Biotechnology (Group) Co. and sports equipment firm Beijing Toread Outdoor Products were both suspended from trade during the first 20 minutes after they rose 20 percent from their opening prices.

In the following two hours Friday morning, trading in all other stocks at the long-awaited NASDAQ-style second board was suspended and most of the shares started to climb again as trading resumed. Chengdu Geeya Technology became the only stock suspended three times, soaring 209.73 percent from its initial public offering (IPO) to close at 35 RMB (5.22 USD) per share, the biggest surge among the newly listed companies.

The other 27 stocks finished their first trading day up between 76 percent and 195 percent. Center Testing International Corp., the only Shenzhen company among the first batch listed, was suspended from trading twice and closed 78 percent above its IPO.

The rampant speculation created 13 billionaires overnight among the firms' founding shareholders, and at least one individual shareholder of each firm saw their personal wealth exceed 100 million yuan at Friday's finish.

The value of shares owned by Huayi Brothers Media chairman Wang Zhongjun ballooned to 3.1 billion RMB, while Pu Zhongjie, president of medical equipment maker Lepu Medical Technology, saw his worth surge to 3.8 billion RMB.

Meanwhile, each retail investor lucky enough to win an IPO subscription could cash in on the debut day for an average of 17,000 RMB — a small fortune for China's small investors.

Chinese retail investors, who have a tendency to chase new shares, became the main force behind the rally Friday. Institutional investors bought only 11.42 million shares of the 28 companies, accounting for only 2.63 percent of the total being traded, while more than 252,000 retail investors bought a combined 423 million shares, according to statistics by the Shenzhen Stock Exchange.

The number of retail investors who bought fewer than 50,000 shares accounted for 99.56 percent of the total and they bought 86.31 percent of the shares being bought Friday, while the number of retail investors who bought fewer than 10,000 shares accounted for 97.22 percent, and they bought 60.08 percent of the total.

"Such intense investor enthusiasm bodes very well for upcoming IPOs on the market, but we expect speculation to die down after a couple of months or so," said Zheng Weigang, head of investment at Shanghai Securities.

The high valuation of growth board stocks has also become a worry. The 28 companies completed recent IPOs at prices averaging 56 times 2008 earnings, while the huge gains in Friday's trade pushed the averaged price-to-earning ratio up to around 110.03 times, according to statistics.

"High valuations for companies seeking a listing on the board were very normal" because of the various differences between these companies and those listed on the mature markets in China, said Song Liping, general manager of the Shenzhen Stock Exchange.

However, she admitted that there were "some immature phenomena in the pricing."

The stunning debut of the 28 companies probably doesn't bode well for their performance in the coming weeks and many analysts have warned of a sharp correction in coming sessions.

Yu Zuojie, an analyst with Shanghai Securities, said he expected calmer trading in the coming days.

"Performance of the growth board stocks will be more diversified next week and the board is unlikely to stage another sharp rise,"  Yu said Friday.

Many investors said they sold all their shares, out of concern that the high valuations would not be sustainable.

While the new board is designed to help technology and innovation-driven startup firms raise funds, the initial batch of 28 debutants are mostly well-established and financially less risky companies.

China has 10 million small and mid-sized companies starved for loans from domestic banks, which favor big State-owned enterprises.

Spurred in part by a lack of immediate access to funds at home, 22 Chinese startups have joined the U.S. NASDAQ Stock Market this year, bringing the total of such firms listed on the U.S. market to 116.

Editor: Miranda
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