ACTIVITY surrounding the initial public offering of Beijing Enterprises Holdings last week proves that there is still more than enough demand for quality China plays. Nevertheless, there is concern that some would-be investors queuing for application forms for Beijing Enterprises had no clue what businesses the company was involved in. Still, this was not a problem, because the name of the game is speculation, not long-term investing, in many cases. The most important thing to remember is that as the grey market price was surging, the stock was a sure winner. All the successful applicant had to do was sell the shares on the first trading day and a windfall would surely come. That is the idea anyway. And while it might be true, it could be a very precarious basis for making an investment. Beijing Enterprises and Chu Kong Shipping made news last week as investors scrabbled for the companies' new shares. While the former is the investment arm of the Beijing municipal government, the latter is owned by the Guangdong provincial government. The interest in these companies stems from the hopes of profitable asset injections from the parent company into the listed vehicle at bargain prices. For one thing, this cannot be gauranteed. This is also presumptious. The investor must look beyond these rosy dreams to see the real picture. For example, in its listing prospectus, Chu Kong Shipping declined to make any profit forecast for the current fiscal year. Not many retail investors would know this, because they did not read the prospectus. Chu Kong said simply that 'it is difficult' to predict with certainty the turnover of the group's river trade transportation business, the main generator of Chu Kong's earnings. This did not stop the new issue being 480 times oversubscribed, or its shares rising 200 per cent on the first day of trade last Friday. The market is currently being driven by sentiment, and sentiment can turn sour, something some analysts are already anticipating. It is often the case that a share price will rise in anticipation of the reporting of bumper profits. When the profits are announced, and they are even better than expected, the shares often fall because any good news has already been discounted. The same may happen after the handover, some analysts are already starting to predict. The party will be over and the red chips may come tumbling down. The stock exchange and the Securities and Futures Commission (SFC) may already be concerned about this. The regulators early last week issued a joint statement warning that companies whose share prices moved erratically would come under increased scrutiny. What they did not say was that the warning was specifically aimed at red chip counters, but there have been some big rises in the shares of several over the past few weeks. When Beijing Enterprises commences trade this week, it will be interesting to see how high they will go before punters decide that the stock is too expensive.