November 13, 2019 / 8:55 AM / 2 months ago

China's STAR Market stocks cede lofty valuations

SHANGHAI, Nov 13 (Reuters) - Shares of half a dozen tech firms on China’s newly-launched, Nasdaq-style STAR Market slid below their initial public offering (IPO) prices this month as a rapidly slowing economy forced investors to reassess their high valuations.

Shanghai Haohai Biological Technology and Tianjin Jiuri New Materials, a manufacturer of photoinitiators, fell below their issue prices on Nov. 6.

Shares of Tianjin Jiuri closed at 62.74 yuan on Wednesday, down 6% from its issue price. That represents a discount of 16.3% to a record high hit on the first day of trade.

The IPO of this firm, the quickest so far to register such a drop in value, was launched on Nov. 5 at a price-earnings ratio of 42.2, versus 16.9 for peers in the chemicals industry.

Four other firms have seen their share prices slide as investors looked more closely at their business operations and results. Ningbo Ronbay and Suzhou TZTEK Technology fell more than 60% from their highest levels.

All six firms had said before listing that their price-earnings ratios exceeded their respective industry peers, warning investors against a risk of losses caused by potential share price drops.

Wang Jingyao, an analyst with Lianxun Securities, said the initial investor euphoria over the market has given way to a more rational assessment of companies’ fundamentals.

The Shanghai Stock Exchange’s tech market, or Science and Technology Innovation Board, was launched in July to much fanfare and was seen as the Chinese equivalent to Nasdaq.

Designed to allow pre-profit companies to list and for venture capitalists to exit investments in loss-making start-ups, the market was to help China along in its search for tech self-sufficiency amid a bruising trade war with the United States. It now comprises more than 50 companies.

Trading on the new board for homegrown tech firms hit fever pitch on its debut day, with shares up as much as 520%, sending valuations to eye-popping levels and raising concerns over whether firms were over-valued.

The ongoing correction is partly due to high valuations of those companies at the IPO stage, Wang added.

Analysts at Dongxing Securities noted that investors had a shorter 3-month learning curve this time, compared with China’s previous start-up exchange ChiNext where it took 6 months for stocks to fall below IPO prices.

Editing by Vidya Ranganathan and Jacqueline Wong

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