Three China IPOs suspended from trade after surging by maximum-permitted 44 pc in debut action
Three initial public offerings on mainland stock markets surged by their daily limit 44 per cent in debut trade on Monday, as retail investors continued to chase newly listed stocks despite warnings from authorities over the risk of irrational buying.
China Galaxy Securities, Jilin JLU Communication, and Guangdong Xiongsu Technology, all rose by the maximum-permitted 44 per cent from their offer price, in an otherwise uneventful day of trade that saw the Shanghai Composite Index close slightly higher.
China Galaxy Securities, one of the country’s largest brokerage firms, was suspended from trade shortly after the market opened, after its stock was limit-up at 9.81 yuan on the Shanghai Stock Exchange.
The Beijing-based broker raised 4.09 billion yuan through its IPO, which was priced at 6.81 yuan per share.
The benchmark Shanghai Composite Index closed at 3,136.78 on Monday, up 0.4 per cent.
Jilin JLU Communication and Guangdong Xiongsu Technology were suspended from trading on the ChiNext board of the Shenzhen Stock Exchange at 7.76 yuan and 10.14 yuan respectively, as both surged by their daily maximums for new listings.
Investors had requested far more stock than quantities available, with Galaxy Securities reporting an oversubscription rate of 481 times in its online tranche, while JLU reported 2,683 times and Xiongsu 2,356 times.
Ben Kwong, executive director at KGI Asia, said new share listings on mainland China rarely disappoint investors on debut, but speculative behaviours usually made prices highly volatile.
“Investors are still looking for something to play with, so they would like to trade in the short-term,” Kwong said.
“Maybe the share prices can sustain for one week, nobody knows whether they can be sustained for another week,” he said.
Investors in Shanghai and Shenzhen have a history of chasing IPOs for speculative gains. In 2015, the China Securities Regulatory Commission suspended IPOs for four months from July through November in order to stabilise the market following a dramatic sell-off that saw share prices drop 30 per cent in Shanghai over a four week period from June 15.
Nonetheless, the regulator restarted IPOs in November 2015 and accelerated the pace of approvals in the second of last year, sparking concerns that it could drain market liquidity and hammer valuations of existing shares and recent listings.
Louis Tse Ming-kwong, director of VC Brokerage, said faster IPO approvals could hurt the valuations of the next batch of new listings.
“If there are too many IPOs in a short span, retail investors won’t have sufficient money to manoeuvre, and newly listed shares may suffer in their subscription rates,” Tse said.