Staggering gains for ChiNext debutants

A Chinese medical instrument manufacturer surged by 2,932 percent on its debut on China’s ChiNext board today, among a flood of new offerings trading under revamped rules that remove daily price limits for new stocks.

A batch of 18 companies traded for the first time under so-called registration-based initial public offerings, gaining by an average 212 percent by the close.

Contec Medical Systems Co rocketed by 2,932 percent from its IPO price before paring to end trading 1,061 percent higher.

Automotive cable maker Ningbo KBE Electrical Technology closed up by 743 percent. Both were temporarily halted after jumping by 60 percent from their opening prices.

The ChiNext index closed 2 percent higher after falling by 1.5 percent earlier.

“Many had expected a big slump under the new trading rules,” said Hao Hong, chief strategist for Bocom International in Hong Kong. “The swings are normal compared with its historical volatility.”

The reforms are a significant step in Beijing’s efforts to liberalize its capital markets and authorities will want a smooth implementation of changes to the US$1.3 trillion ChiNext board.

There is the risk that demand for new shares may suck funds from existing equities, which are looking expensive after the index surged by nearly 50 percent this year.

The ChiNext trades at nearly 38 times forward 12-month earnings versus a 14 multiple for the CSI 300 index. The measure is down around 7 percent from its July peak. “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.” 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%. In a sign of investor enthusiasm toward the new listings, multiple stocks including Contec and KBE were temporarily halted after surging from their opening prices on Monday. Tansun Technology Co. shares were paused after jumping 60% from the opening price, while Academy of Environment Planning and Design Co. and Yangling Metron New Material Inc. triggered a similar halt after shares jumped 30% from their levels at open. The new companies had raised a combined 20 billion yuan ($2.9 billion) from their ChiNext listings, with retail demand outstripping supply by an average of around 5,700 times, according to data compiled by Bloomberg.