There are few things that Chinese punters love more than the chance to gamble on shiny, new stocks.
Combine that with a shiny, new exchange and you have what looks increasingly like a surefire debut for ChiNext, China’s planned, Nasdaq-style second board, which could be launched as early as next month in the southern Chinese town of Shenzhen.
However, as Reuters reports on Thursday, there are already concerns that the high prices being eyed for the IPOs of the first 10 companies due to list on the exchange could further fuel casino-style speculation.
In fact, after gauging investor demand, the 10 start-ups, including software developer Beijing Ultrapower and outdoor sportswear-maker Toread, are planning on prices for their shares that average 55 times their 2008 earnings, notes Reuters. That compares with an average price/earnings ratio of 36 for other IPOs this year on the mainland.
According to financial website InSing, the 10 companies now aim to raise up to 6.68bn yuan ($977.5m) — more than double the 3.16bn yuan previously planned, according to statements filed with the Shenzhen bourse.
The prospect that ChiNext will take off with prices for small start-ups at 50 per cent above their mainboard peers has prompted worried officials to impose an 80 per cent limit on share price movements during the first day of trade, the Shenzhen Stock Exchange said in a statement on Thursday.
If the prices of start-up stocks move up or down more than 80 per cent during the first trading day, the bourse will suspend trading until the final three minutes before the session ends. There are two other debut-day circuit-breakers, according to the SZSE statement, under which trading is suspended for 30 minutes if shares in a company move up or down 20 per cent from the opening price, and then another 30 minutes for a 50-per cent shift.
As the exchange noted:
“The size of share offering in the growth enterprise market is often not large; therefore, if investors blindly follow the trend, buying and selling stocks, prices are very vulnerable to wide swings,” the exchange said.
Quite. As Jiang Jianrong, an analyst at Shenyin & Wanguo Securities, told Reuters: “Growth potential, rather than past performance, is what investors are looking at, so a high PE ratio doesn’t necessarily mean they’re over-priced.” But, he added, “without doubt, it will be quite a speculative market at the beginning because it’s new and the companies are very small. ”
Undoubtedly there are hopes in the PRC that ChiNext will morph into a massive Chinese Nasdaq, bringing forth the future Microsofts of the country.
The Shenzhen exchange has not confirmed the actual date for ChiNext’s launch. But analysts expect the second board to be launched soon after the country’s week-long National Day holiday, which ends on October 8, reports InSing. The exchange did, however, say that the 10 debut companies, which also include drug-producer Chongqing Lummy Pharmaceutical and Beijing Lanxum Technology Co, a provider of office information system services, will take subscriptions from investors on Friday.
One to watch…
Related links:
Shenzhen Stock Exchange website – SZSE