Shares of three small Chinese companies soared by over 40 percent in their debuts on Thursday in the first mainland listings in over four months, highlighting the challenges the stock regulator faces in weeding out speculation and curbing volatility in the market.
In a sign of strong demand for new shares, all three companies rose by 44 percent by mid-morning from their IPO prices.
The China Securities Regulatory Commission (CSRC) resumed the IPO market earlier this year after halting listings for 14 months. But after a two month flurry of activity, no offerings were approved until early June, when seven companies got the go-ahead.
The three IPOs on the Shenzhen stock exchange drew robust demand, with subscription rates of between 120 and 218 times over the number of shares on offer after the deals were priced at relatively cheap valuations.
The rush for the shares also continued in the secondary market with shares of waste disposal firm Wuxi Xuelang Environmental Technology Co Ltd, Shandong Longda Meat Foodstuff Co and Feitian Technologies Co all jumping by the maximum 44 percent.
The CSRC has said it will stop involving itself in IPO pricing and move to a registration-based system similar to that employed in developed economies where the market effectively decides who gets to list and for how much.
However, the watchdog has so far kept a tight leash on supply and pricing, announcing earlier this year that companies which set their IPO price-to-earnings ratios higher than the ratios of industrial peers in the secondary market will need to publish repeated risk warnings before they open subscriptions to retail investors. It has also carried out spot checks on price consultations and pre-marketing of new listings.
"A lot of regulators try not to interfere in the IPO price and there is a lot of reason to support this trend, but China has its own special economic arrangement," said Ringo Choi, a partner at Ernst & Young.
"The CSRC has its own reasons to monitor pricing, so the stock market will not overheat, which is in line with the general planned economic policy."
