China's Self-Styled Nasdaq Shines in Debut

Source: The Wall Street Journal by Shen Hong

With Stocks' Gains Ranging From 76% to 210%, However, Some Observers Fear Speculative Bubble

SHANGHAI -- ChiNext, China's Nasdaq-style stock market, opened with a roar as its initial batch of companies logged gains of as much as 210%, underscoring China's investors' appetite for new listings.

ChiNext was set up as a fund-raising venue for small, innovation-driven firms, which were largely closed out of China's recent lending boom. The share gains fueled concerns that the exchange would mirror the performance that tends to define new listings in China: large initial gains followed by a brutal pullback.

At the end of the day, the market capitalization of ChiNext as a whole stood at 140 billion yuan ($20.5 billion), more than double the 68.6 billion yuan total based on the firms' IPO prices. The board had trading volume on the first day of 21.9 billion yuan, compared with 120 billion yuan for the benchmark Shanghai Composite Index.

The explosive debut, which left the exchange's stocks trading at around 100 times earnings, comes as broader concerns that lower interest rates, huge fiscal stimulus and a growing appetite for risk amid improvements in the global economy are causing potentially dangerous asset bubbles across Asia. Property and stock markets in China and other countries have been rising quickly, and China has seen an increase in inflows of speculative "hot money."

Within hours of the trading start, all 28 ChiNext stocks had risen to the point where one after the other they were forced into temporary trading halts by the Shenzhen Stock Exchange, which hosts the upstart venue.

But by afternoon, some profit-taking had emerged and analysts warned of a sharper correction in coming sessions. "ChiNext is everyone's focus right now and the stocks all have small capitalization. That makes the stocks ideal targets for speculators," said Wang Junqing, an analyst at Guosen Securities.

All the ChiNext stocks finished the day with robust gains, led by Chengdu Geeya Technology Co., a cable- and digital-TV equipment maker, which rose 210% to 35 yuan from its initial public offering price of 11.30 yuan. The other 27 stocks logged gains ranging from 76% to 195%.

While the new board, launched after nine years of preparation, is designed to help technology and start-up firms raise funds, the initial batch of debutantes are mostly well-established and financially less risky companies.

Some companies may have turned to ChiNext amid the longer waiting period to get approval for a mainboard listing. The firms include state-owned enterprises: For example, 53.9% of Lepu Medical Technology (Beijing) Co., a medical-appliances maker, is indirectly held by China Shipbuilding Industry Corp. through two of its units.

A Shanghai-based individual investor said he sold all his ChiNext-listed shares on Friday, on concerns the stocks' high valuations wouldn't be sustainable. "I had expected the stocks to rise," he said, "but I hadn't realized that they could rise that much."

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