Banking & Finance

How 28 IPOs got suspended

New “Nasdaq-style” stock exchange in rollercoaster opening

Investment star: Chinese movie director Feng Xiaogang

Feng Xiaogang is China’s most successful movie director. Thanks to ChiNext’s he’s also the richest too.

Feng owns 2.3% of Huayi Brothers, the film studio that listed last Friday on ChiNext – China’s new stock exchange. On its opening day, Feng’s stake surged in value to Rmb204 million ($29.8 million).

Huayi Brothers stock leapt 148% on debut day, spiking up within minutes of the opening bell.

Nor was it alone. All the stocks that listed on ChiNext’s inaugural day “skyrocketed” according to the People’s Daily. The newspaper points out that the average price gain was 110%, with the biggest gain being 210%.

This was not without consequences. Under a special rule to curb ‘speculation’, ChiNext suspends trading of any stock that rises more than 80% – only reopening trading in that counter for three minutes before the close.

Suspensions were widespread and swift, reports Xinhua.

“All 28 stocks on China’s new Nasdaq-style market for small and medium-sized companies had been temporarily suspended within the first two hours of trading,” noted the state news agency.

For anyone who read last week’s Talking Point (A new place to punt?), this will hardly come as a shock. China’s IPO markets have always been volatile and speculative. ChiNext was simply forecast to be more so: a Shenzhen-based example of speculation-on-steroids.

Huayi Brothers, for example, finished its first day with a market value of $1.7 billion, and trading at 124 times earnings – a valuation sure to put off the widows and orphans.

Indeed, this was exactly the market most people anticipated. Shen Hongbo, a columnist with the Southern Weekly, said local investors now viewed stock markets like beer: bubbles were to be expected.

According to the Shanghai Securities News, a total of 252,600 retail investors bought a combined 423 million shares last Friday. Little wonder that People’s Daily said exuberant investors “chose to gamble big”.

Renowned local commentator, Professor Liu Jipeng described the advent of ChiNext as the capital market’s latest step in “groping across the river” – a reference to China’s transition from a planned economy to a free market – but cautioned: “Irrational buying on ChiNext will result in heavy losses later.”

Widespread predictions of a “rollercoaster” were then born out. On its second day of trading (Monday), the exchange fell 8.5%, with 20 stocks incurring the maximum permitted daily loss of 10%. On the third day, there were further declines: 23 stocks fell.

Among the many concerns of the National Business Daily is that ChiNext has made too many company owners ‘overnight billionaires’. It asks: “Will these billionaires still be passionate about their business?”

In the case of Feng Xiaogang such fears don’t look merited: the director is hard at work on his latest blockbuster for Huayi Brothers, The Tangshan Earthquake Disaster.

Meanwhile the ChiNext looks likely to face its own seismic activity in the coming weeks.


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