Wild ride for new firms unrelated to market fundamentals

13:50, January 20, 2011      

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Share prices of five newly listed companies rebounded Wednesday following Tuesday's free fall.

The companies include one listed on the Shanghai Stock Exchange and four on the ChiNEXT or growth enterprise board listings on the Shenzhen Stock Exchange.

On their first day of trade share prices fell from 6 percent to 14 percent.

By market close Wednesday, Anhui Honglu Steel Construction Co, one of the five newcomers, saw its stock price spike from 7.02 percent to 41 yuan ($ 6.23), its listing price. The other four new stocks also witnessed different upward movements from just 0.43 percent to 5.68 percent on Tuesday's market close.

Tuesday's simultaneous hard fall was quite remarkable in Chinese stock market history, since investors seldom see new stock prices trading below the issue price.

After initial public offerings grew in popularity in the second half of 2009 following the global financial crisis, the largest first-day-trading day fall belongs to Liaoning Oxiranchem Inc on May 20, 2010, when its stock price slipped 10 percent.

But on Tuesday, three of the newly-listed companies surpassed Oxiranchem's May tumble.

"The collapse of newly-listed firm prices Tuesday was mainly coupled with weak market sentiment over the uncertainties of tightening policies, and had little to do with fundamentals," Chen Min, a strategy analyst with Founder Securities, told the Global Times.

These included further up-ticks of the reserve requirement ratio and interest rate hikes, Chen said.

"It takes some time for the market to correct prices," China News reported Wednesday citing Wang Ren, chief strategy analyst with Ping An Securities.

Many small investors often blame the slump of the market was due to the rampant financing of listed companies from the stock market.

The raised funds from China's A-share market were 478.3 billion yuan ($72.66 billion) in 2010, up 155 percent from 2009, according to a PricewaterhouseCoopers' recent report.

An official government website cited Premier Wen Jiabao as saying "keep reasonable financing scale and rhythm" and stabilize the capital market at a State Council's meeting Tuesday.

Source: Global Times
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