Not Enough Stocks Means It’s Gone Quiet on China’s New Board

(Bloomberg) -- China’s newest stock venue is no longer the talk of the town.

Stock gains and trading activity on Shanghai’s Star board have slowed since July’s launch, while the pace of initial public offerings has been lackluster. Eleven of the 29 stocks that have listed so far ended Friday’s trading more than 30% below their recent closing highs.

Investors have been shifting their money into China’s more established markets. A Bloomberg-compiled gauge tracking the Star market is down 10% from Aug. 15’s high while the Shanghai Composite Index has climbed 6.8%, as of Friday. The Star market fell 0.7% as of 10:36am Monday while the Shanghai benchmark was down 1.1%.

Hailed by regulators as a testing ground with its relaxed rules on listing and trading, the Star board opened to much fanfare when the first batch of 25 stocks started trading. They surged an average 140% that day, with more than $7 billion of shares changing hands. But just four new companies have listed since the first batch, with the number of IPOs set to fall far short of expectations.

“We originally expected there would be around 100 companies to list on Star market this year,” said Edward Au, co-leader of the National Public Offering Group at Deloitte China. Now, it “may be only a few dozen at most.”

Along with rich valuations, the lack of fresh IPOs has helped sap trading activity on the Nasdaq-style board.

Last week was particularly quiet, with only 5.9 billion yuan of daily average trading. Turnover fell to about 4.7 billion yuan ($663 million) on Sept. 16, the lowest yet and only a fraction of the initial week’s 29 billion yuan daily average. Conversely, turnover in stocks elsewhere in China has risen since July, with all major benchmarks rebounding.

Still, four companies set to start trading on the Star venue may soon give the board some juice. The firms priced their IPOs last week at higher valuations that their listed peers, showing there’s still appetite for the shares. Shanghai Bright Power Semiconductor will set its IPO price Monday. The Star index is up almost 20% from its closing level on July 22, the day of its debut.

“Investors are waiting for more and more companies to list” on the venue, said Zhang Aoping, managing director at Real Capital. “Once they see really good companies,” especially any industry leader, “they will definitely come back.”

To contact Bloomberg News staff for this story: Ken Wang in Beijing at ywang1690@bloomberg.net;Mengchen Lu in Shanghai at mlu157@bloomberg.net;Amy Li in Shanghai at yli677@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Kevin Kingsbury

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With assistance from Bloomberg