The ChiNext stock market <0#CHINEXT.SZ>, China's long-awaited Nasdaq-style second board, debuted on Friday with a speculative surge that more than doubled the price of all its 28 stocks -- a good sign for firms lining up to list on China's main stock markets.
The bubbly open to a market that hopes to turn local start-up firms into budding Microsofts or Intels stirred concerns about speculative froth, but analysts said circuit-breakers would curb excesses while a steady supply of new shares would help to keep mainland stock valuations under control.
We certainly won't build positions at such high prices, said a senior manager at a Chinese mutual fund, who could not be quoted by name as he was not authorized to talk to the media.
The huge interest has created dozens of yuan billionaires overnight among the firms' founding shareholders, while retail investors lucky enough to win an IPO subscription lottery could cash in on the debut day for up to 40,000 yuan ($6,000) -- a small fortune for China's small investors.
I got 2,000 shares in the primary market and I've sold out, said veteran retail investor Lao Yao. I won't buy on the secondary market. Only die-hards would trade at such high prices.
ChiNext, part of the Shenzhen Stock Exchange in booming southern China, started out with a market capitalization more than 100 times that of China's main Shanghai Stock Exchange, which launched in 1990, and vastly deepens China's capital markets by expanding funding channels for small innovative firms.
Market players had expected at least a third of the stocks to more than double on the first day. It is typical for IPOs listing in Shenzhen to double or triple on their debut because of their low capitalization.
ChiNext halted trade in all 28 new stocks at least once for 30 minutes during the morning after they rose 20 percent from their opening price, triggering exchange circuit-breakers intended to curb excessive speculation.
About half the stocks were hit with a second 30-minute halt by extending their gains to 50 percent. Trading in Chengdu Geeya Technology Co <300028.SZ> was later halted until three minutes before the close after its stock shot up 80 percent.
Film maker Huayi Brothers Media Corp <300027.SZ> was the most actively traded stock, with investors drawn by the famous celebrities associated with the company.
The value of Huayi Chairman Wang Zhongjun's shares in the company ballooned to 3.9 billion yuan, while Pu Zhongjie, president of medical equipment maker Lepu Medical Technology <300003.SZ>, saw his holdings' worth surge to 5 billion yuan.
Almost all companies have now seen their share prices surging to excessive valuations, betraying rampant speculation, said Zheng Weigang, head of investment at Shanghai Securities.
Such intense investor enthusiasm bodes very well for upcoming IPOs on the market, but we expect speculation to die down after a couple of months or so, mainly because regulators are pushing large numbers of new shares into the market.
The 28 listees, almost all private companies in contrast with the state-owned corporations that dominate China's main board, completed recent IPOs at prices averaging 56 times 2008 earnings.
Based on forecast 2009 earnings, analysts estimated the average price/earnings (PE) ratio for the IPO prices at around 40 times, while the huge gains in Friday's trade pushed that up to around 80 times, according to Reuters calculations.
Investors have not been deterred by the high prices, however.
The companies raised a combined 15.5 billion yuan from their IPOs, with an average oversubscription ratio exceeding 120 times.
The high valuations on ChiNext appeared also to boost China's main board, where the benchmark Shanghai Composite Index <.SSEC> rose more than 2 percent in morning trade. <.SS> The average forecast PE for main-board shares is about 30 times.
ChiNext's initial 28 start-ups had a market capitalization of 70 billion yuan before trading started, more than doubling to 150 billion yuan by midsession.
In contrast, the Shanghai bourse listed only eight firms on its debut in December 1990, with a combined market capitalization of less than 700 million yuan.
The Shanghai exchange, now boasting a capitalization of 17 trillion yuan and the world's fifth largest, traded only 126,000 shares worth 494,000 yuan on its first day.
(Editing by Ian Geoghegan)