Shanghai Star board froth evaporates wiping out US$1b

Business | 23 Jul 2019 4:38 pm

The biggest shareholders in China’s new Nasdaq-style STAR Market lost a combined US$1 billion in the second day of trade today, a day after the board’s roaring debut created three new billionaires, Reuters reports.

All but four companies of the 25 stocks listed on the market fell as investors took profits from opening day gains, erasing about 9 percent of the total market capitalization.

The new board roared out of the gates yesterday. Some shares surged by 520 percent. Frenzied buying more than doubled the board’s total capitalization from 225 billion yuan to 529 billion by the end of the day.

While the size of the moves on day two paled in comparison, the declines were sharp enough for STAR’s five biggest individual shareholders, including yesterday’s newly minted billionaires, to lose a combined 6.94 billion yuan on paper, according to Reuters calculations, though none lost claims to three-comma fortunes.

Falls were led by China Railway Signal & Communication Corp (688009.SS), which sank by 18.4 percent, the sharpest drop of the day.

But even after that drop, its shares were 71 percent higher than their initial public offer price.

Espressif Systems (Shanghai) Co. (688018.SS), a maker of wireless communication chips, led the day’s gain, rising by 14.2 percent.

Yuan Yuwei, fund manager at Olympus Hedge Fund Investments Co, said that STAR Market valuations could remain frothy in the short term, but that he expected to see more declines over the next two to four weeks.

“This is a serious bubble,” he said. “Valuations don’t support fundamentals. Frothy valuations benefit big shareholders but retail investors will be burnt.”

Data from the Shanghai Stock Exchange showed margin loans turbocharged trading on Monday, with investors borrowing a total of 1.51 billion yuan (US$219.38 million) to boost their buying power.

Margin lending data for today was not yet available.




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