ChiNext shares plunge after debut

09:05, November 03, 2009      

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Stocks traded on the ChiNext startup board in Shenzhen yesterday plunged after surging heavily on their Oct 30 debut, challenging the ability of regulators to control volatility in the new bourse.

All but three of the 28 new stocks on ChiNext declined. Twenty scrips dropped to their daily limits of 10 percent yesterday, the second day of trading.

Huayi Brothers Media Corp, backed by Alibaba Group Holding Ltd Chairman Ma Yun (Jack Ma) and famous director Feng Xiaogang, tumbled to the daily 10-percent limit, to 63.73 yuan after rallying 148 percent on Friday.

Beijing Toread Outdoor Products Co, a retailer of camping and outdoor equipment, slumped 10 percent to 45.06 yuan after jumping 153 percent on its debut day.

"It was clear that these stocks would fall after they climbed to highs on the first day of trading," Yu Haitao, an analyst at Shenzhen-based First Capital Securities, said.

"Judging from the price-to-earnings ratio, investors have already over-valued these companies," said Yu.

The average price-to-earnings ratio among the 28 companies on the ChiNext is 71.6, compared with 32.4 for China's benchmark Shanghai Composite Index and 21 for the S&P 500 Index. The value of the companies more than doubled on Oct 30, according to Bloomberg data.

"The performance of ChiNext stocks in the coming two weeks is expected to be similar to the performance of stocks on the small- and medium-sized enterprise (SME) board when it was first launched in June 2004, which dropped 23 percent and 26 percent respectively in the first and second week," said Lu Lihua, an analyst at Century Securities.

But Huang Xiangbin, an analyst at Cinda Securities, said that he believes a 60-80 times' price-to-earnings ratio was a reasonable valuation considering the high growth potential of these companies.

"From a prospective view, the high valuation means these companies' growth potential is fully realized and accepted by investors," said Huang.

Figures from the Shenzhen Stock Exchange showed that 97.37 percent of the trading volume on the first day of trading on ChiNext was from individual investors. 252,600 individual investors had altogether bought 423 million ChiNext shares compared to 11.4 million shares bought by institutional investors.

None of the mutual funds, social security funds or insurance majors bought ChiNext shares on Friday, figures from the bourse revealed.

Contrary to the bad performance of ChiNext, China's main board yesterday rose 2.7 percent to close at 3076.65 points. The Shanghai Composite Index has grown 69 percent since the beginning of the year.

Health-related shares rose after Premier Wen Jiabao warned about the spread of H1N1 influenza.

Companies that may benefit from a proposed Disney theme park in Shanghai outperformed. Shanghai Lujiazui Finance & Trade Zone Development rose 8.94 percent to 30.47 yuan. Shanghai Jielong Group Industry climbed to its 10-percent daily limit touching 18.57 yuan.

Source:China Daily
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