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SCMP Reporter

Efforts by market regulators to constrain first-day trading volatility failed yesterday after the mainland's first initial public offerings in nine months surged by up to 125 per cent in their Shenzhen debuts.
Investors rushed to buy Guilin Sanjin Pharmaceutical and Zhejiang Wanma Cable, prompting the Shenzhen Stock Exchange to suspend trading in the companies for 30 minutes.
The wild swings were an embarrassing setback for the China Securities Regulatory Commission, which wants to curb irrational buying euphoria amid a 71 per cent gain in the key index this year.
To calm trading, the Shenzhen exchange recently introduced a rule under which it would suspend trading for 30 minutes if a stock rose or fell 20 per cent from the opening price on its first day of trading. 
The CSRC has been striving to narrow perennially handsome first-day gains to ensure fairness in the market, especially for small investors who get caught out when a previously bullish stock declines after the first day.
Stunned by the gains, the CSRC unexpectedly approved a large offering by China State Construction Engineering after the market closed yesterday in an apparent efforts to absorb excess liquidity.
Previously, prices of new offerings in China have been set artificially low under CSRC directives as Beijing wanted state-owned companies to raise as much funds as possible on the stock market.
The policy has been criticised as unfair to retail investors who often chased first-day gains, only to be left with heavy losses when the shares retreated after the trading debut.
Shares of Guilin Sanjin opened at 32.50 yuan (HK$36.86) yesterday, 64 per cent higher than the offering price of 19.80 yuan. The Shenzhen exchange halted trading 18 minutes later when they surged to 39 yuan. The traditional medicine maker closed at 36.01 yuan, up 81.9 per cent from the offering price.
Zhejiang Wanma opened at 22.50 yuan, almost double the offering price of 11.50 yuan, before trading was suspended 13 minutes later when they rose as high as 27 yuan. The shares ended at 25.93 yuan, 125.5 per cent more than the offering price.
'It proves the regulators have failed in attempts to make the IPOs more market-oriented,' said GF Securities analyst Ge Zheng. 'The performances of the two stocks largely beat the boldest expectations of analysts and investors.'
After it lifted a nine-month ban on listings last month, the CSRC resolved to let market forces decide prices for the offers, according to sources.  
Prices of Guilin Sanjin and Zhejiang Wanma had been set relatively high and analysts predicted they would not be traded at a heavy premium on the first  day. 
The offer prices for both companies represented more than 30 times their  earnings last year, compared with an average multiple of 38 times earnings on the Shenzhen bourse. The exchange issued warnings last week to individual investors, warning them not to buy into newly listed firms if the shares jumped to an unreasonable level during their debuts. 
'It was yet another example that everyone in the market, from the regulator to the brokerages and to the investors, is immature and irrational,' said Huatai Securities analyst Zhou Lin. 'It is obvious that the regulator will fast-track IPO approvals to cool a  red-hot market.' 
The CSRC's approval of State Construction Engineering's 42.6 billion yuan offering yesterday will allow the company to begin this year's potentially biggest listing on the A-share market next week, according to a source.
The regulator also announced yesterday that it will vet applications by Anhui Xinlong Electric and Shanghai Chaori Solar Energy Science and Technology on July 15.



Sanjin, Wanma halted after surging on debut