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)