Shanghai new tech board stocks blast off in frenzied trade

Business | 22 Jul 2019 5:33 pm

Trading on China’s new board for homegrown tech firms hit a fever pitch today, sending shares up by 520 percent, increasing the combined value of companies by US$44 billion and surpassing the expectations of veteran investors braced for a wild ride, Reuters reports.

Sixteen of the first batch of 25 companies - ranging from chip-makers to health care - more than doubled their already frothy initial public offering (IPO) prices on the STAR Market, operated by the Shanghai Stock Exchange.

The companies racked up average gains of 140 percent in a raucous first day of trade that tripped the exchange’s circuit breakers designed to calm frenzied activity. The day’s weakest performer leapt by 84.22 percent.

In total, about 305 billion yuan (US$44.3 billion) in new market capitalization was created, according to Reuters’ calculations.

“The price gains are crazier than we expected,” said Stephen Huang, vice president of Shanghai See Truth Investment Management. “These are good companies, but valuations are too high. Buying them now makes no sense.”

Modeled after Nasdaq, and complete with a U.S-style IPO system, STAR may be China’s boldest attempt at capital market reforms yet.

Trading in Anji Microelectronics Technology (Shanghai) Co (688019.SS), a semiconductor firm, was briefly halted twice as the company’s shares hit two circuit breakers - first after rising by 30 percent, then after climbing by 60 percent from the market open.

The mechanisms did little to keep Anji shares in check as they soared by 520 percent from their IPO price in the morning session. Anji shares ended the day up by 400.2 percent from their IPO price, the day’s biggest gain, giving the company a valuation of nearly 242 times 2018 earnings.

Suzhou Harmontronics Automation Technology Co Ltd (688022.SS), in contrast, triggered its circuit breaker in the opposite direction, falling by 30 percent from the market open in early trade before rebounding. But by the market close, the company’s shares were still 94.61 percent higher than their IPO price.

Wild share price swings, partly the result of loose trading rules, had been widely expected. IPOs had been oversubscribed by an average of about 1,700 times among retail investors.

The STAR Market sets no limits on share prices during the first five days of a company’s trading. That compares with a cap of 44 percent on debut on other boards in China.

In subsequent trading sessions, stocks on the new tech board will be allowed to rise or fall a maximum 20 percent in a day, double the 10 percent daily limit on other boards.

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