Extraordinary gains by the debutantes of Shanghai's new technology innovation board dragged down the broader China and Hong Kong markets on Monday, as frenetic investors withdrew from the main boards to pile into the Nasdaq-style bourse.
The 25 stocks that debuted on the first day of trading in the board, also known as the STAR board, recorded gains between 84 per cent and 400 per cent from their initial offering prices. The new board is part of China's efforts to encourage more funding and support for its homegrown technology companies amid increasing rivalry with the US.
Turnover of the 25 stocks topped 48.5 billion yuan (US$7 billion), making up one ninth of the overall transaction in China's A shares. Manufacturer of semiconductor materials Anji Microelectronics Technology led the gains with a 400 per cent gain to 196.01 yuan from the offering price of 39.19 yuan, after rising by as much as 521 per cent during the day.
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The Shanghai Composite Index slid 1.3 per cent to 2,886.97, and the Shenzhen Component Index was down 1.2 per cent. The ChiNext Index of start-ups listed in Shenzhen declined 1.7 per cent.
The Hang Seng Index dropped 1.4 per cent to 28,371.26.
"The decline in the main boards was a clear result of capital flowing into the new STAR Market," said Alan Li, portfolio manager at Atta Capital.
Li cautioned that the valuation level the high-flying stocks could be getting too high.
"The majority of the stocks are definitely overvalued," he said. "The wider the gap between the stock price and the company's earnings or growth, the bigger the risk of future losses is."
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The companies already enjoyed high valuations when they applied to go public under the STAR Market's relaxed listing requirements, Li said. And listing on the STAR Market does not mean the companies are fundamentally superior to those currently traded on the ChiNext board of start-ups in Shenzhen.
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The most expensive among the 25 stocks is semiconductor equipment maker Advanced Micro-Fabrication Equipment (688012 SH), which was valued at 247 times of its 2019 forecast earnings.
Shares of the company ended at 81.03 yuan, up 179 per cent from its initial offering price of 29.01 yuan.
Meanwhile, in Hong Kong, investors are bracing for the impact of continued social unrest as unprecedented violence broke out on Sunday night.
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At least 45 people were injured by a mob of men in white T-shirts Sunday night in the subway station of Yuen Long in northwest Hong Kong. The men attacked residents and journalists with rods and bamboo sticks, as some demonstrators returned from the third major march against a proposal that would allow extraditions to Hong Kong.
"If incidents like the one in Yuen Long continue and spread to other areas, the confidence of investors will truly be shaken. Both Chinese and overseas capital will be affected because people will start to really worry about public security in Hong Kong," Li said.
Private school operator China Yuhua Education bucked the trend and surged by 9.7 per cent to HK$3.62, after announcing a plan to acquire a private college for 1.5 billion yuan (US$218 million).
The company, which is the second-largest Chinese private education firm listed in Hong Kong, said in an exchange filing on Monday that it would acquire a 90 per cent stake in Shandong Yingcai University to raise its competitiveness in northern China.
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