Ningbo KBE Electrical, Contec Medical post triple-digit gains on ChiNext

A flood of new offerings on China’s ChiNext index began trading under revamped rules that remove daily price limits for debut shares, testing investor demand for the already pricey gauge.

A batch of 18 companies, ranging from electronic product manufacturers to medical instrument makers traded for the first time under so-called registration-based initial public offerings, Bloomberg reports.

Ningbo KBE Electrical Technology surged by 433 percent on its first day, while Contec Medical Systems gained 413 percent as of 9:36 a.m.

The ChiNext gauge erased an early gain to slip by 0.1 percent.

The reforms are a landmark in China’s efforts to liberalize its capital markets and Beijing will want a smooth implementation of changes to the US$1.3 trillion ChiNext board. Yet demand for new shares may suck funds from existing equities which are looking expensive after the index surged almost 50 percent this year.

New share sales won’t be subject to price caps in the first five trading days, while daily limits on existing stocks will double to 20 percent.

“There is no doubt we will see greater volatility in ChiNext market after new rules are implemented, especially given the recent pressure it has faced following huge gains this year,” said Jiang Liangqing, a fund manager at Beijing-based Ruisen Capital Management. “If new shares keep rushing to the market at a fast pace, it will put pressure on existing stocks which already trade at high valuations.”

The ChiNext trades at 37 times forward 12-month earnings versus a 14 multiple for the CSI 300 index. The measure is down by almost 9 percent from its July peak.