Candidates interested in a transfer include Tungda Innovative Lighting, Launch Tech and Bee & Bee Natural Life A lack of liquidity in Hong Kong's Growth Enterprise Market (GEM) is prompting GEM-listed companies to consider moving to the main board and some market players believe the secondary board is losing its investment value and fund-raising functions. Many GEM companies have approached brokerages or investment bankers wanting to place shares to institutional investors, and are marketing themselves by saying they will list their shares on the main board soon, said Eugene Law, a China analyst at Guotai Junan Securities. 'The GEM board is now becoming more like a stepping stone towards the main board,' said Mr Law. The board was set up in 1999 with the aim to provide a conduit for growth companies of all industries and sizes to raise capital in the market. To help them do that, the listing requirements were rather lax compared with those stipulated for the main board. 'Back in 2000 the GEM candidates, especially the internet companies, merely needed an idea in order to list,' said Frederick Tsang, a director at China Everbright. 'But this is now impossible after the bursting of the internet bubble.' Investors are now more cautious and very sceptical, and are looking at prospects of both revenues and profits, analysts said. 'Everyone now just says no to GEM shares,' said Dale Tsang, managing director at GC Capital. Investors do not have much confidence in GEM companies, which typically are not yet profitable at the time of listing, he added. GEM-listing candidates do not need to have a profit track record, they just need to show that they have had active business 'pursuits' for at least 24 months. By comparison, main board-listing candidates need to show three years of profits totalling $50 million. As a result of declining investor interest in GEM shares, many GEM companies intend to give up their listing status on the secondary board and instead list on the main board, Mr Law said. So far this year there have been four successful upgrades. Mainland lighting products maker Tungda Innovative Lighting Holdings has filed an application to the stock exchange for a transfer, which is still pending approval. And more firms are seen to be on their way, including vehicle technology service provider Launch Tech, which has just placed shares to institutional investors. There is also speculation that natural supplementary food maker Bee & Bee Natural Life Products and Chinese font technology developer KanHan Technologies Group are planning to place shares and seek a listing on the main board. Fewer new companies are also expected to enter the GEM board, some analysts said. So far this year, only 19 firms have listed on the secondary board, compared with a total of 57 companies last year. 'I would suggest candidates list on the main board whenever they can,' said Mr Tsang of GC Capital. 'If they do not meet the profit track record requirement, I would recommend they wait until they do have three years of profit unless they are in urgent needs of capital financing,' he added. To be sure, some analysts disagree the GEM board is losing its significance, saying it is still attractive to growth companies with financing needs, in particular to the Chinese private enterprises. Recently, a number of Chinese private enterprises have expressed interest in listing on the Hong Kong GEM due to the less stringent requirements. Even more encouraging is the increasing interest from fund managers in GEM companies, an industry source said. 'Fund managers usually could not invest in GEM shares because of mandate restrictions,' the source said. 'But now, with fund managers eager to outperform, mid or small-cap companies and even the quality GEM shares could become targets as a trading opportunity.'