THE SHENZHEN Growth Enterprise Market (GEM) board continued on Monday’s downside cue, falling some 7.94% on Tuesday in heavy trade on the new capital raising platform.

Of the 28 shares listed on the new board which seeks to attract capital-hungry mid-cap firms, 26 counters dropped on the day and one was unchanged, but only due to continuous trade-stops due to built-in range limits.

After the average price-to-earnings (P/E) ratio hit a new record high, the board followed the fate of the Hong Kong main board and began shedding recent gains with noticeable vengeance, SinaFinance reported.

  

Shenzhen GEM listco

Tuesday P/E

Valuation change

Bode Energy Equipment (300023)

133.9

-5.734%

Beijing Dinghan Tech (300011)

118.5

-8.867%

Jifeng Agricultural (300022)

104.2

+6.654%

Chase Sun Pharma (300026)

51.8

-7.704%

Shanghai Bestway Marine (300008)

48.2

-9.293%

Huadian Science & Tech (300018)

47.6

-9.669%

Highest and lowest three Shenzhen GEM P/Es and their Tuesday performance

  
Some analysts had voiced concerns that the new board would attract speculative positions and behavior due to its less stringent listing requirements relative to the existing A-share markets in Shenzhen and Shanghai.

Others said it might attract substandard companies that would not ordinarily survive on the established capital markets in both mainland cities, as well as across the de facto border in Hong Kong.

On the drawing board for over a decade, the GEM was envisioned as a “Chinese Nasdaq,” hoping to help domestic SMEs with ambitious business plans – backed by innovative operations – to compete in the elite world of listed firms.

Following a long and arduous process – including intermittent delays to wait out various global market downturns – the country’s securities watchdog finally approved the board for launch last month, with the China Securities Regulatory Commission (CSRC) also looking to bring in more diverse forms of investment to a national economy no longer able to rely solely on foreign consumers for income.

Analysts had cautioned that the Shenzhen GEM board should brace itself for high valuations fueled by enthusiastic investors, a phenomenon that could possibly destabilize the new stock market over the next few months, PRC media reported.

"We will see big ups and downs in the new market; the price fluctuation is always huge on second-tier boards, particularly so in the mainland stock markets," said a DBS Vickers analyst.

Relatively high valuations are already holding their own after nearly a month of trading on the board, with
Bode Energy Equipment (300023) currently topping the list of 28 firms on the GEM with a P/E ratio of 133.9 times.

In comparison, the average historical P/E ratio of Shenzhen-listed shares is 39 times and that of stocks on the main Shanghai Stock Exchange is 27. This compares against a recent average of just 17 times for Hong Kong-listed shares.

But with Tuesday’s big drops for the lion’s share of GEM listcos, some investors are sure to see bargains where others see overpricing, and the upward valuation spiral is likely to kick back into gear.

Share Prices

Counter NameLastChange
AEM Holdings3.7300.030
Avi-Tech Electronics0.280-
Best World1.760-
Broadway Ind0.120-
China Sunsine0.4000.005
DISA0.003-
Food Empire0.630-0.010
Fortress Minerals0.370-0.005
Geo Energy Res0.350-0.005
Golden Energy0.790-0.005
GSS Energy0.048-
InnoTek0.4800.020
ISDN Holdings0.400-
ISOTeam0.090-
IX Biopharma0.124-0.001
Jiutian Chemical0.0810.001
KSH Holdings0.350-
Leader Env0.056-
Medtecs Intl0.134-0.002
Meta Health0.025-
Nordic Group0.4700.005
Oxley Holdings0.1540.003
REX International0.2300.005
Riverstone0.620-0.005
Sinostar PEC0.185-
Southern Alliance Mining0.4200.010
Straco Corp.0.4050.010
Sunpower Group0.275-
The Trendlines0.0940.002
Totm Technologies0.099-0.003
UG Healthcare0.189-0.001
Uni-Asia Group0.8200.010
Wilmar Intl4.020-0.030
Yangzijiang Shipbldg1.350-0.030

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