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Saturday October 10, 2009

All agog over new listings

MADE IN CHINA:BY CHOW HOW BAN


Speculators hoping for a killing from the 10 flotations coming on ChiNext, a Nasdaq look alike, will find the China Securities Regulatory Commission watching trade movements like a hawk.

THE Shanghai and Shenzhen stock markets reopened yesterday after the week-long National Day holidays in a frenzy of trading following news that a record two trillion yuan (RM989bil) worth of shares will float on the bourses this month.

State media reported that the initial Growth Enterprise Market (GEM) shares had drawn 784.1bil yuan (RM387bil) worth in applications, compared with stocks on offer totalling only 6.68bil yuan (RM3.3bil).

GEM, also known as ChiNext and likened to Nasdaq, is meant for cash-strapped and small but promising companies in the business of innovation and technology.

The first batch of 10 companies are expected to be listed on the ChiNext board in Shenzhen, and allocation of shares will be announced within the month.

Back in fray: Locals looking at the stock board as the Shanghai and Shenzhen stock markets are expected to be back with frenzy trading after a week long National Day holidays in China

“Investor expectation normally is that new shares will surge on their trading debut,” Lin Feng, an analyst at Aerospace Securities Co, told Shanghai Daily.

Analysts expect the first 10 share offers to be over-subscribed, but below the 435 times average seen in the 24 initial public offerings on the two main boards so far this year.

A report by Founder Securities Co said some of the 10 companies had a higher rate of subscription in the off-line tranche for institutional investors than in the online portion for retail investors.

“This indicates that individual investors are wary of the higher risks inherent in the new board, and lack confidence in stock markets when the index is falling,” it said.

“Nevertheless, the IPOs this month will rake in much needed capital for the companies, which often have trouble securing bank loans to develop their innovative ideas, products and services.”

In the past week, Huayi Brothers Media Group, China’s largest privately-owned film studio, hogged the limelight following the approval by the China Securities Regulatory Commission for it to list on ChiNext.

Huayi Brothers expects to raise 620mil yuan (RM307mil) through its offer of 42 million shares, which is 25% of the company’s total, Beijing Morning Post reported.

With expectation that the 27.5 yuan (RM13.70) offer price will double on debut the stock will see the company’s superstar shareholders millions of yuan richer.

Famous Chinese film director Feng Xiaogang tops them with 2.8 million shares, followed by actor Huang Xiaoming (1.8 million) and actresses Luo Haiqiong (540,000) and Li Bingbing (360,000). Feng is likely to pocket 100mil yuan (RM50mil) from the float.

Chinese entrepreneurs Wang Zhon-gjun and Wang Zhonglei and Alibaba founder Jack Ma are the three major stakeholders in the company.

Surprisingly, Huayi Brothers’ highest-paid actress, Zhou Xun, was not on the list. The owners had to clarify at the media preview of The Message (or Feng Sheng, its Chinese title) last month that Zhou’s No.1 status in the company was not in jeopardy.

“It has nothing to do with her status in the company,” Chongqing Morning Post quoted Zhonglei as saying. “It is purely her choice to not take up the shares offered.

Apparently, Zhou is not interested in stocks and unit trusts. The company explained to her the benefits of the shares, but she declined to take up the offer.”

In an editorial in China News Service, author Li Cheng expressed doubt that ChiNext would yet another avenue for speculators to make quick money.

He pointed out that 496 A-share companies had not paid dividends to their shareholders in the past three years, some not doing so even though they had made profits.

“At the moment, none of the shares can pay dividends higher than bank fixed deposit rates,” he quoted a Guangzhou-based private equity fund manager as saying. “An ordinary investor entering the market to make money can only depend on the fluctuations in stock prices.”

Last month, the Shenzhen Stock Exchange warned speculators that it would keep a close eye on possible over-speculation on the first listing day of ChiNext stocks.

A 20% rise or drop, or a 50% rise or drop on the opening price on the first listing day will lead to temporary trading suspension, it said. Besides, a 80% downside or upside limit will also bring trading to a stop until 2.57pm.

“The new indicator for trading suspension until the market closes has been added to control trading risks, maintain market order and protect the legitimate rights and interests of investors,” a spokesman for the stock exchange said.

“Many investors have high expectations of ChiNext stocks. They should realise that ChiNext-listed companies are just startups with comparatively immature development and may face business failure or even delisting.”

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