GEB needs size to avoid speculation

08:38, December 15, 2009      

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While eight more companies are expected to begin offering stock subscriptions tomorrow ahead of IPOs on Shenzhen's Growth Enterprise Board (GEB), analysts said the board still is in need of expansion to avoid financial speculation.

The companies, including Jinglong Machinery and Electrics Co., set their offering prices Monday. They are expected to raise a total of 1.59 billion yuan ($232.86 million) through their IPOs. Once listed, the eight will bring to 36 the number of companies on the GEB, which was launched in October.

Tang Yonggang, a Hongyuan Securities analyst, said Monday that the board is currently too small and needs to grow to at least 50 companies with a total market value of more than 30 billion yuan ($4.39 billion) to avoid manipulation by investors. He estimated the board's current total market value at no more than 20 billion yuan ($2.93 billion).

"The number of companies need to be enlarged so as to avoid over speculation on the newly launched board," Tang said.

The China Securities Regulatory Commission (CSRC) said on its website that it will review today four more companies that wish to list on the exchange, which is also known as ChiNext. The GEB is an independent board seeking to carve out a NASDAQ-like position as an alternative exchange.

Stock prices among the first batch of companies that listed on the GEB have fluctuated since October. Jifeng Nongji Co., an agricultural machinery company, has seen its shares swing from 35.31 yuan ($5.17) on October 30 to 95.39 yuan ($13.97) on December 3. The company's stock closed at 69.15 yuan ($10.13) Monday.

"This is an unique phenomenon, as 98 percent of the investors on the GEB are individuals," said Southwest Securities analyst Dong Chen. "That is quite different from the main board, on which institutional investors always manipulate stock prices."

Institutional investors have hesitated to get involved on the GEB because the price-to-earnings ratios of the companies listed on it are too high, Tang said.

As of right now, the GEB still lacks an index, meaning investors can only check daily share performance of individual stocks, instead of seeing whether the board as a whole is up or down. Beijing Business Today reported that an index would possibly be launched by the end of this month, citing unnamed sources.

"We need more listed companies as samples to formulate the index standard," Dong said, adding that the GEB is still immature.

Source: Global Times

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