Debutant Soars 2,932% on China’s Already Sizzling Tech Board

(Bloomberg) --

A medical instrument manufacturer surged as much as 2,932% on its debut on China’s ChiNext board on Monday, among a flood of new offerings trading under revamped rules that remove daily price limits for new stocks.

A batch of 18 firms traded for the first time under so-called registration-based initial public offerings, gaining by an average 212% by the close. Contec Medical Systems Co. spiked 2,932% from its IPO price before paring to end trading 1,061% higher. Automotive cable maker Ningbo KBE Electrical Technology Co. closed up 743%. Both were temporarily halted after jumping 60% from their opening prices.

The ChiNext index closed 2% higher after falling by as much as 1.5% earlier. “Many had expected a big slump under the new trading rules,” said Hao Hong, chief strategist for Bocom International in Hong Kong. “The swings are normal compared with its historical volatility.”

The reforms are a significant step in Beijing’s efforts to liberalize its capital markets and authorities will want a smooth implementation of changes to the $1.3 trillion ChiNext board. There is the risk that demand for new shares may suck funds from existing equities, which are looking expensive after the index surged nearly 50% this year. The ChiNext trades at nearly 38 times forward 12-month earnings versus a 14 multiple for the CSI 300 index. The measure is down around 7% from its July peak.

“There is no doubt we will see greater volatility in ChiNext market after new rules are implemented, especially given the recent pressure it has faced following huge gains this year,” said Jiang Liangqing, a fund manager at Beijing-based Ruisen Capital Management. “If new shares keep rushing to the market at a fast pace, it will put pressure on existing stocks which already trade at high valuations.”

New share sales won’t be subject to price caps in the first five trading days, while daily limits on existing stocks will double to 20%.

In a sign of investor enthusiasm toward the new listings, multiple stocks including Contec and KBE were temporarily halted after surging from their opening prices on Monday. Tansun Technology Co. shares were paused after jumping 60% from the opening price, while Academy of Environment Planning and Design Co. and Yangling Metron New Material Inc. triggered a similar halt after shares jumped 30% from their levels at open.

The new companies had raised a combined 20 billion yuan ($2.9 billion) from their ChiNext listings, with retail demand outstripping supply by an average of around 5,700 times, according to data compiled by Bloomberg.

The reforms will serve as a testing ground for whether Beijing can loosen its tight grip on markets without triggering out-of-control moves. Around 800 existing ChiNext stocks are now trading under the wider 20% daily range, compared to 10% previously -- a measure that has not yet been extended to the main boards of Shanghai and Shenzhen.

“It’s a big milestone because it shows that reforms have now entered core areas of China’s capital markets after last year’s Star board debut,” said Jiang, referring to the Nasdaq-style market in Shanghai that has relatively relaxed rules. Investors greeted its opening last year with exuberance, as all stocks jumped an average of 140% by the close on the first trading day.

©2020 Bloomberg L.P.

With assistance from Bloomberg