The trading frenzy in Shenzhen's ChiNext technology board on Monday has raised new concerns over the recently implemented revised trading rules. The unprecedented surge in trading propelled a number of fresh IPOs to elevated price ranges, with one company experiencing a nearly 3,000 percent surge in its stock price.
The revised ChiNext trading rules, which removed the trading cap for new IPOs for the first five days of trading, officially took effect on Monday. A number of stocks that debuted on the same day shot up to unrealistic figures, raising the question of the revised rules' practicality and effectiveness. As of the moment, both the Shanghai and Shenzhen main boards are limiting trading for new IPOs to only a 44 percent increase and a 36 percent decrease for the first five days of trading.
On Monday, share prices of Hubei-based medical equipment firm Contec Medical Systems skyrocketed by more than 2,932 percent, reaching a high of 308 yuan per share. The company initially priced its IPO at only 10.16 yuan per share during its debut. At Monday's closing, the stock ended up 1,061 percent higher, at 118 yuan per share. This made the stock the best performing IPO in mainland China since 2000.
Apart from Contec Medical, the other 17 companies that made their debuts on the tech innovation board on Monday also saw their stocks soar. Share prices of Ningbo KBE Electrical Technology jumped by over 743 percent during the day. This made it the second-best-performing stock.
According to a report by Bloomberg, companies listed on the ChiNext tech innovation board are valued at an average of 81 times their reported earnings. This makes them almost five times as expensive as comparable companies on the Shanghai Composite Index. Analysts at Bocom International Holding in Hong Kong noted that ChiNext companies have become very expensive, mostly due to speculation. It is not yet clear if the new reforms will prove to be successful and if the values of the companies will eventually correct themselves in the coming months.
Investment managers at Soochow Securities stated that speculation during a stock's debut is to be expected. However, the stock will eventually adhere to market pricing, which means most will likely correct in the long term.
