News Story
'Chinese Nasdaq' off to overheated start
Tuesday November 03, 2009 17:32:58 EST
A new Chinese stock exchange that began trading Friday in Shenzhen could potentially be a key bourse for the overheated money market in the fast-growing country.
This potential became evident on the opening day when all 28 listed stocks soared and trading had to be suspended temporarily.
Meant to nurture small and high-tech firms in such fields as information technology and biotechnology, the ChiNext exchange is modeled on the U.S.-based Nasdaq. It took 10 years for the Chinese government to open the exchange.
Chinese newspapers reported Saturday on the enthusiasm shown on the first day of trading, saying there were numerous speculative transactions made.
The opening prices of all 28 listed stocks exceeded their public offering prices while their prices closed about 1.7 to three times higher than the public offering prices. The 28 firms procured about 15 billion yuan, or about 200 billion yen, by issuing new shares.
Shares held by a 57-year-old woman from Beijing rose 70 percent above the public offering price in the first 25 minutes of trading, she said, adding she then sold 5,000 shares, meaning she made about 80,000 yuan, or about 1.06 million yen.
China restricts overseas investments, and its bond market for absorbing long-term investments is still immature. This means funds tend to gravitate to stocks and real estate. Since the financial crisis erupted last autumn, a huge amount of funds have been injected into such investments, thereby seemingly overheating the market.
Among the 28 firms are Huayi Brothers Media Corp. -- producer of a romantic movie that ignited a Hokkaido boom in China -- outdoor sportswear maker Toread and Internet-related and pharmaceutical companies. About 1,000 other companies are reportedly seeking to be listed on the ChiNext.
Listing requirements for the second board at the Shenzhen Stock Exchange are more lenient than the conventional Chinese stock markets. The minimum profit level required for listing is set at a combined 10 million yuan for the most recent two years compared with a combined 30 million yuan for the most recent three years when applying for listing on the conventional exchanges.
The ChiNext market is designed to help start-up firms, which find it hard to obtain bank loans and cannot be listed on conventional exchanges, to procure funds in the market.
Exchanges for start-up firms have been established in quick succession in industrialized nations as they are considered indispensable for economic vitality. But among them, only the Nasdaq can be called an outright success, Tsuyoshi Kawada, a senior strategist of Nikko Cordial Inc., said.
Japan saw a series of scandals involving listed start-up firms, such as Livedoor Co. In Germany, meanwhile, newly emerging markets are stuck in the doldrums.
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