Risks and Rewards on China's New Stock Board
Reuters/China DailyCompany delegates of GEM, also known as ChiNext, at the listing ceremony Friday. Values of the newly listed companies surged.
By DAVID BARBOZA
Published: November 2, 2009
SHANGHAI — The opening of a Nasdaq-style stock board in China is already being seen as a watershed moment for the country’s capital markets, providing new but volatile opportunities for mainland Chinese investors and an alternative source of financing for start-up companies.
On Monday, the second day of trading on the ChiNext board, 25 of the 28 listed shares fell, many by the daily limit of 10 percent, while the benchmark MSCI index of Asia-Pacific shares outside Japan fell about 1 percent
Over all, shares fell about 8.5 percent on ChiNext, but the drop came after a day of gains that were astronomical and amid expectations that shares on the new board would be subject to big ups and downs. On Friday, the first day of trading on ChiNext, a secondary board of the Shenzhen stock exchange, the shares of some companies soared as much as 210 percent.
The first batch of the 28 companies listed — including film producers, software makers and pharmaceutical companies — raised about $2 billion in their initial public offerings, far more than the companies had hoped.
By the end of trading Monday, the combined market value of the companies was almost $19 billion, creating fortunes for the founders and initial investors in those companies.
China is already the world’s biggest market for initial public offerings this year, and its resurgent economy is flush with capital and investors with a big appetite for risk.
But trading experts have long complained that the mainland’s stock market system is seriously flawed, partly because of a misallocation of capital.
State-run banks lend primarily to state-owned companies, which tend to be inefficient. Listings on the Shanghai stock exchange and the main board of the Shenzhen exchange are dominated by government enterprises. Because there are few opportunities for stock listings on the mainland, young private mainland companies generally list their shares in Hong Kong, which operates under rules separate from the mainland’s, or overseas on the Nasdaq or New York Stock Exchange.
The government hopes to change that with the creation of ChiNext. The government is seeking to create a more efficient capital market system, one that would steer investment capital to small and midsize private enterprises — companies that can help reshape the economy through technology and innovation, rather than low-price exports.
“This is potentially a major game changer in China’s high-tech industry,” said Yu Zhou, a professor at Vassar College in Poughkeepsie, New York. “For about 10 years, the biggest problem for China’s innovative companies was finance. You know, it is veA Chinese investor monitors screens showing share prices at a security firm in Wuhan, central China's Hubei province on November 2, 2009. More than two-thirds of the shares listed on China's newly launched Nasdaq-style board ended limit-down on profit-taking on November 2, in only the second session after a wild debut last week, as twenty of the 28 stocks listed on the Shenzhen-based ChiNext fell by the daily trading limit of 10 percent, and analysts said there was room for further correction. CHINA OUT AFP PHOTOry hard for them to get loans from state-owned banks.”
Although ChiNext is tiny when compared with the Shanghai and Hong Kong stock exchanges, regulators hope it will eventually compete with Nasdaq and entice more Chinese companies to list with it.
ChiNext is also expected to give a boost to venture capital and private equity markets in mainland China, which have been hampered by a system that until now has not provided investors with what industry insiders call an exit strategy — a way of eventually cashing out of their investments in small companies through a domestic stock market.
There are big challenges to creating a stock board similar to Nasdaq, which includes companies like Microsoft, Intel and Google. For instance, volatile stock prices and high valuations could hurt the new board’s credibility with entrepreneurs and investors.
Chinese investors are known to speculate, favoring momentum buying and selling rather than the underlying fundamentals of a company, analysts say. Indeed, the casinolike nature of the Shanghai stock exchange and the main Shenzhen board, combined with government intervention, have added to the volatility of the mainland markets.
Analysts warn that ChiNext could also be prone to similar speculative frenzies.
Andy Xie, an economist who formerly worked at Morgan Stanley, is already calling ChiNext a “V.I.P. table on top of a big casino.”
Chang Chun, an expert on financial markets at the China Europe International Business School in Shanghai, said that China needed a market to serve start-ups, but “the issue is the maturity of Chinese investors.”
Before trading opened Friday, he said, regulators created rules to guard against excessive volatility and even warned investors that they would crack down on aggressive speculation. Still, the opening Friday — with 28 companies beginning to trade at once — was marked by wild price swings.
The buying was so feverish that regulators, trying to calm the market, temporarily suspended trading of the 28 companies at different points, and analysts warned of the risks posed by excessive speculation and inflated stock prices.
One cause of concern was the huge valuations of the first batch of stocks.
The average company on ChiNext has a price-earnings ratio of about 100 meaning investors are paying $100 for every $1 of 2008 earnings. By comparison, the Nasdaq 100 index has a price-earnings ratio of 23.6, according to Bloomberg.
ChiNext stocks are also priced far above Shanghai-listed stocks, which have long been considered inflated by the standards of more mature markets.
Hundreds of Chinese companies are eagerly awaiting their turn to list on the ChiNext, and many analysts say the exchange will fill an important need: directing financing toward smaller start-ups that help rebalance economic growth. Ms. Zhou at Vassar said she had heard that there were more than 1,000 companies in Beijing’s high-technology district alone that met the requirements for listing shares on the ChiNext board.
http://www.nytimes.com/2009/11/03/business/global/03yuan.html?pagewanted=2&ref=business
Showing posts with label ChiNext. Show all posts
Showing posts with label ChiNext. Show all posts
Tuesday, 3 November 2009
New Chinese stock exchange opens with a surge
New Chinese stock exchange opens with a surge
China’s GEM has been likened to a “VIP table on top of a big casino”. — Reuters pic
SHANGHAI, Nov 2 — The highly anticipated opening of China’s new Nasdaq-style stock exchange last Friday is already being seen as a watershed moment for the country’s capital markets, providing new opportunities for Chinese investors and an alternative source of financing for upstart companies.
Investors went on a wild buying spree during the first day of trading Friday on the Growth Enterprise Market, or GEM, sending the shares of some companies soaring as much as 210 per cent.
“This is potentially a major game changer in China’s high-tech industry,” said Yu Zhou, a professor at Vassar College in Poughkeepsie, NY “For about 10 years, the biggest problem for China’s innovative companies was finance. You know it is very hard for them to get loans from state-owned banks.”
The buying was so feverish that regulators, trying to calm the market, temporarily suspended trading in the shares of all 28 newly listed companies at different points on Friday, and analysts warned about the risks posed by excessive speculation and inflated stock prices.
Stocks on the GEM opened sharply lower today, with many shares down 10 per cent.
Still, the first batch of companies listed on the GEM — including film producers, software makers and pharmaceutical companies — raised about US$2 billion (RM6.8 billion) in their initial public offerings, far more than the companies had hoped.
By the end of trading Friday, the combined market value of the newly listed companies was more than US$20 billion, creating fortunes for the founders and investors in those companies.
China is already the world’s biggest market for initial public offerings, and its resurgent economy is flush with capital and investors with a big appetite for risk.
But trading experts have long complained that this country’s market system is seriously flawed, partly because of a misallocation of capital.
State-run banks lend primarily to state-owned companies, which tend to be inefficient. Listings on the Shanghai and Shenzhen stock exchanges are dominated by government enterprises. Young private Chinese companies generally list their shares overseas, in Hong Kong or on the Nasdaq or New York Stock Exchange, because there are few opportunities for stock listings inside the country.
But the government hopes to change that with the creation of the GEM, which is based in the southern boomtown of Shenzhen. The government is seeking to create a more efficient capital market system, one that would steer investment capital to small and midsize private enterprises — companies that can help reshape the economy through technology and innovation, rather than low-price exports.
Although the GEM, which is also known here as ChiNext, is tiny when compared with the Shanghai and Hong Kong stock exchanges, regulators hope it will eventually compete with Nasdaq and entice more Chinese companies to list with GEM.
The GEM is also expected to give a boost to China’s venture capital and private equity markets, which have been hampered by a system that until now has not provided wealthy investors with what industry insiders call an exit strategy, or a way to eventually cash out of their investments in small companies through a domestic stock market.
There are big hurdles to creating a stock exchange similar to Nasdaq, which includes companies like Microsoft, Intel and Google. For instance, volatile stock prices and high valuations could hurt the new bourse’s credibility with entrepreneurs and investors.
Chinese investors are known to speculate, favouring momentum buying and selling rather than the underlying fundamentals of a company, analysts say. Indeed, the casino-like nature of the Shanghai and existing Shenzhen exchanges, combined with government intervention, have added to the volatility of the Chinese markets.
Analysts warn that the GEM could also be prone to similar speculative frenzies.
Andy Xie, an economist who formerly worked at Morgan Stanley, is already calling the GEM a “VIP table on top of a big casino.”
Chang Chun, an expert on financial markets at the China Europe International Business School in Shanghai, said that China needed a market to serve start-ups, but “the issue is the maturity of Chinese investors.”
Before trading opened Friday, he said, regulators created rules to guard against excessive volatility and even warned investors that they would crack down on aggressive speculation. Still, Friday’s opening — with 28 companies beginning to trade at once — was marked by wild price swings.
One cause of concern was the huge valuations of the first batch of stocks listed Friday.
The average GEM-listed company has a price-to-earnings ratio of about 100 — meaning investors are paying about US$100 for every US$1 of 2008 earnings. By comparison, the Standard & Poor’s 500-stock index of big American companies trades at closer to 20 times earnings.
GEM stocks are also priced far above Shanghai stocks, which have long been considered inflated by United States standards.
Still, hundreds of Chinese companies are eagerly awaiting their turn to list on the GEM, and many analysts say the exchange will fill an important need: directing financing toward smaller start-ups that help rebalance economic growth. Zhou at Vassar said she had heard that there were over 1,000 companies in Beijing’s high-tech district alone that met the requirements to list shares on the GEM exchange.
Analysts say many more start-ups will be eager to list after seeing the riches made by the first group of companies to go public on the GEM.
For instance, Wang Zhongjun and his brother Wang Zhonglei are the founders of Beijing-based Huayi Brothers Media, one of the country’s leading film producers. Shares in their company jumped 148 per cent Friday, for a valuation of about US$1.7 billion. — NYT
China’s GEM has been likened to a “VIP table on top of a big casino”. — Reuters pic
SHANGHAI, Nov 2 — The highly anticipated opening of China’s new Nasdaq-style stock exchange last Friday is already being seen as a watershed moment for the country’s capital markets, providing new opportunities for Chinese investors and an alternative source of financing for upstart companies.
Investors went on a wild buying spree during the first day of trading Friday on the Growth Enterprise Market, or GEM, sending the shares of some companies soaring as much as 210 per cent.
“This is potentially a major game changer in China’s high-tech industry,” said Yu Zhou, a professor at Vassar College in Poughkeepsie, NY “For about 10 years, the biggest problem for China’s innovative companies was finance. You know it is very hard for them to get loans from state-owned banks.”
The buying was so feverish that regulators, trying to calm the market, temporarily suspended trading in the shares of all 28 newly listed companies at different points on Friday, and analysts warned about the risks posed by excessive speculation and inflated stock prices.
Stocks on the GEM opened sharply lower today, with many shares down 10 per cent.
Still, the first batch of companies listed on the GEM — including film producers, software makers and pharmaceutical companies — raised about US$2 billion (RM6.8 billion) in their initial public offerings, far more than the companies had hoped.
By the end of trading Friday, the combined market value of the newly listed companies was more than US$20 billion, creating fortunes for the founders and investors in those companies.
China is already the world’s biggest market for initial public offerings, and its resurgent economy is flush with capital and investors with a big appetite for risk.
But trading experts have long complained that this country’s market system is seriously flawed, partly because of a misallocation of capital.
State-run banks lend primarily to state-owned companies, which tend to be inefficient. Listings on the Shanghai and Shenzhen stock exchanges are dominated by government enterprises. Young private Chinese companies generally list their shares overseas, in Hong Kong or on the Nasdaq or New York Stock Exchange, because there are few opportunities for stock listings inside the country.
But the government hopes to change that with the creation of the GEM, which is based in the southern boomtown of Shenzhen. The government is seeking to create a more efficient capital market system, one that would steer investment capital to small and midsize private enterprises — companies that can help reshape the economy through technology and innovation, rather than low-price exports.
Although the GEM, which is also known here as ChiNext, is tiny when compared with the Shanghai and Hong Kong stock exchanges, regulators hope it will eventually compete with Nasdaq and entice more Chinese companies to list with GEM.
The GEM is also expected to give a boost to China’s venture capital and private equity markets, which have been hampered by a system that until now has not provided wealthy investors with what industry insiders call an exit strategy, or a way to eventually cash out of their investments in small companies through a domestic stock market.
There are big hurdles to creating a stock exchange similar to Nasdaq, which includes companies like Microsoft, Intel and Google. For instance, volatile stock prices and high valuations could hurt the new bourse’s credibility with entrepreneurs and investors.
Chinese investors are known to speculate, favouring momentum buying and selling rather than the underlying fundamentals of a company, analysts say. Indeed, the casino-like nature of the Shanghai and existing Shenzhen exchanges, combined with government intervention, have added to the volatility of the Chinese markets.
Analysts warn that the GEM could also be prone to similar speculative frenzies.
Andy Xie, an economist who formerly worked at Morgan Stanley, is already calling the GEM a “VIP table on top of a big casino.”
Chang Chun, an expert on financial markets at the China Europe International Business School in Shanghai, said that China needed a market to serve start-ups, but “the issue is the maturity of Chinese investors.”
Before trading opened Friday, he said, regulators created rules to guard against excessive volatility and even warned investors that they would crack down on aggressive speculation. Still, Friday’s opening — with 28 companies beginning to trade at once — was marked by wild price swings.
One cause of concern was the huge valuations of the first batch of stocks listed Friday.
The average GEM-listed company has a price-to-earnings ratio of about 100 — meaning investors are paying about US$100 for every US$1 of 2008 earnings. By comparison, the Standard & Poor’s 500-stock index of big American companies trades at closer to 20 times earnings.
GEM stocks are also priced far above Shanghai stocks, which have long been considered inflated by United States standards.
Still, hundreds of Chinese companies are eagerly awaiting their turn to list on the GEM, and many analysts say the exchange will fill an important need: directing financing toward smaller start-ups that help rebalance economic growth. Zhou at Vassar said she had heard that there were over 1,000 companies in Beijing’s high-tech district alone that met the requirements to list shares on the GEM exchange.
Analysts say many more start-ups will be eager to list after seeing the riches made by the first group of companies to go public on the GEM.
For instance, Wang Zhongjun and his brother Wang Zhonglei are the founders of Beijing-based Huayi Brothers Media, one of the country’s leading film producers. Shares in their company jumped 148 per cent Friday, for a valuation of about US$1.7 billion. — NYT
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