Trading frenzy grips China’s new stock venue after big IPO gains


SHANGHAI • They propelled a little-known semiconductor manufacturer to a 521% 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 greeted the opening of the country’s Nasdaq-style stock market with a frenzied burst of trading yesterday, driving gains in all 25 companies that made their debut.

The stocks posted an average surge of 148% by 1.07pm in Shanghai yesterday, with most slipping from their intraday highs.

The so-called Star market is China’s latest attempt to avoid losing the next Alibaba Group Holding Ltd or Tencent Holdings Ltd to exchanges in New York or Hong Kong.

Endorsement from top officials helped generate such enthusiasm that firms raised a combined US$5.4 billion (RM22.2 billion), about 20% 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 initial public offering (IPO) pricing or speculative trading,” said Zhu Junchun, a Shanghai-based analyst with Lianxun Securities Co Ltd.

“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 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 will 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% cap in either direction.

To limit volatility, the venue suspends activity for 10 minutes if a stock moves by 30% and then 60% 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’s no access through trading links with Hong Kong.

The first batch of listings included China Railway Signal & Communication Corp Ltd, whose Hong Kong shares sank on huge volume as traders switched into the A shares.

Advanced Micro-Fabrication Equipment Inc, which was the most expensive listing of the batch, jumped as much as 331%.

Its 171 multiple compared to 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’s 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 fell as much as 1.5% yesterday, while the ChiNext Index was down as much as 2%.

It’s 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 centre 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 Index remains more than 60% below its peak four years ago.

“I’m not going to participate in the Star board anytime soon,” said Qu Shaohua, MD at Acroguardian Investment Co.

“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 the launch is a success,” said Fu Lichun, an analyst at Northeast Securities Inc.

“People are indeed quite enthusiastic, and maybe got a little over-excited at the open.” — Bloomberg