In China, newly-listed ChiNext shares surge in historic reform

SHANGHAI (Reuters) – Shares of 18 companies surged on their ChiNext debut on Monday, kicking off a historic reform that will see Shenzhen officially challenge Shanghai for tech listings, while adding fuel to a “technology war” with the United States.

Investors piled into the first batch of firms listed on Shenzhen’s tech-focused start-up board under a streamlined system for initial public offerings (IPOs) that made the process less bureaucratic. Trading restrictions were also loosened.

Highlighting investor frenzy, Contec Medical Systems Co 300869.SZ, a maker of medical diagnostic equipment, surged more than 1000% on its first day of trading. Even the smallest gainer jumped 43%.

With more than 800 ChiNext-listed companies trading at roughly 60 times earnings on average, compared with 38 for the Nasdaq .NDX, some market watchers warn of bubble risks.

“The ChiNext reform is a significant part of China’s grand competition strategy with the United States,” wrote Hao Hong, head of research at BOCOM International.

But describing ChinNext as “a venue for speculation,” Hong said that “falling stock prices, instead of rising, should be the sign of whether such market reform is successful”.

China’s top securities regulator Yi Huiman said during a ceremony on Monday regulators will have “zero tolerance” towards market misbehaviours, but will not interfere with normal trading activities. Vice Premier Liu He also said the market should do the job of weeding out bad companies.

The 18 companies listed on Monday included automotive cable maker Ningbo KBE Electrical Technology Co 300863.SZ, which surged 743%, and IT solution provider Tansun Technology Co 300872.SZ, which jumped 259%.

Based on Shanghai’s year-old STAR Market, the broadening IPO reform will help strengthen the appeal of China’s capital markets at a time when Chinese tech firms face growing U.S. scrutiny and risk of being delisted from U.S. markets.

Abrahman Zhang, chairman of Shenzhen China Europe Capital Co, said the IPO reform benefited Chinese venture capitalists like him, who are finding it easier to raise tech-focused funds, and exit their investments via listings.

“Top policymakers are recognising that venture capitalists help boost productivity, rather than seek arbitrage,” Zhang said. “One concern is that too much hot money is now chasing a limited number of quality companies in China.”

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