The first batch of eight stocks listed on China's new board for
small-cap companies posted unexpected strong performances in the
first trading day on Friday. Their debut was in contrast to the
continuing depressed main market.
Hans Laser Technology Co, a private high-tech company
specializing in laser products manufacturing and based in the
technology-driven southern city, was the top gainer from the
beginning to the end. It opened at 40 yuan (US$4.80) with a 334.8
percent surge over its initial public offering (IPO) price and
closed at 39.09 yuan (US$4.79).
However, analysts warned investors of high risk in the so-called
"new eight" as the average price to earnings (P/E) ratio of the
eight stocks had reached an unreasonable high of 61-times earnings,
compared with the main market's 30-times P/E ratio.
"We had expected the performance of the 'new eight' would be
strong but an average 110 percent growth was really beyond our
expectation, and at least 28-30 percent higher than our forecast,"
said Huang Kaijun, an analyst at China Eagle Securities.
"The over-valued stocks could hardly attract the institutional
investors, but lure the active cash-in of the small individual
investors. We expect the prices will dip gradually in the next week
to a more reasonable level," he said.
His point was echoed by Luo Xiaoming, an analyst with Ping'an
Securities, who described the market for the new board as
"completely irrational." "Without a solid support, the market will
soon come back to earth," he said.
Trading was extremely active on the "new eight." The turnover
rate stood at around 70 percent on average, as the initial
shareholders sold the stocks immediately for profit taking.
As a result, transactions on the board for small and
medium-sized enterprises (SMEs) in Shenzhen, which was officially
launched on May 27, accounted for one quarter of the total turnover
of around 14 billion yuan (US$1.7 billion) on both the Shanghai and
Shenzhen exchanges on Friday.
A total of 21 small-cap companies have launched their IPOs in
the SMEs board, which will be ultimately developed into an
independent Chinese NASDAQ-like market.
Observers expect the market will have its own index when it
grows to have 40-50 stocks. "At a current speed of four new IPOs a
week, the index may come into shape very soon, but the
pre-condition is the market must be stabilized with less
speculation," said Eagle's Huang.
He was quite disappointed that the performance of the SMEs board
failed to interact with the main market.
"What we expected is the SMEs would have a sound beginning and
improve the whole market performance as a result, by boosting the
small-cap shares in the main markets or stocks in the same sectors
with the 'new eight'," said Huang.
Godfrey Gao, president of Hans Laser, said he felt "extremely
flattered" by the soaring opening price after a grand launching
ceremony on Friday morning. "The gain should partly be attributed
to the investors' confidence in our company as the only high-tech
company with high growth potential among the eight newly-listed
companies," he said.
Elec-tech International Co, a leading small home appliance
manufacturer based in Zhuhai, Guangdong Province, achieved the
lowest rise among the "new eight." Tony Wang, president of
Elec-tech, said he was delighted to see the price was quite solid.
"We are optimistic in the company's next 10 to 12 months operation
our performance will be a big surprise to everybody," Wang
said.
The benchmark Shanghai composite index ended the day down 1.87
percent at a seven-month low. It has dipped 21 percent from early
April because of credit curb measures by the central authorities to
cool down the economy, and fears of an imminent interest rate
rise.
(China Daily June 26, 2004)