Poor debut shatters myth of assured new share success

14:50, January 19, 2011      

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All of the five companies that debuted on China's A-share market Tuesday fell below their initial public offering (IPO) prices, which belied the conventional wisdom that new shares never fail.

Stock prices of Anhui Sierte Fertilizer Industry Co., Ltd., Shindoo Chemical Industry Co., Ltd., Jiangsu Asia-Pacific Light Alloy Technology Co., Ltd. and Anhui Honglu Steel Construction (Group) Co., Ltd. — the five companies that debuted on the Shanghai Stock Exchange and the Shenzhen Stock Exchange — fell around 10 percent below their IPO prices. Changshu Fengfan Power Equipment Co., even fell short of its IPO price by 14.46 percent.

Since the reform of China's IPO approval mechanism, investors have found it more and more difficult to bet on new stocks.

In 2010, share prices of 26, or around 7 percent, of the 347 companies that finished their IPOs fell below IPO prices on their first trading days. Since the beginning of this year, 21 companies debuted on China's capital market, while stock prices of nine of them dropped below IPO prices on their first trading days.

On Jan. 13, Sinovel Wind Group Co, China's top wind turbine producer, debuted on the Shanghai Stock Exchange with an opening price 3.33 percent lower than its initial public offering. Sinovel fixed the issue price of its IPO at 90 yuan per share and planned to raise up to 1.4 billion U.S. dollars in one of the most expensive main board IPOs in Shanghai.

Analysts pointed out that the weak market and excessively high IPO prices have overdrawn the upward potential of the new shares.

According to an online survey conducted by Shanghai Securities News and Stockstar.com, 78 percent of individual investors believed that the debut performance of the five companies was "reasonable" and more than 85 percent thought financial institutions that fixed prices too high were responsible.

Financial institutions also suffered for their irrational actions. Twenty-seven public funds witnessed altogether 42.8 million yuan of floating loss on the five companies.

By People's Daily Online


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