Overvalued speculation hot young gem encounters the old ills of the Chinese market

The latest stock trading platform in China is facing many old problems in China's capital market, that is, overvalued and speculative heat. China's gem is aimed at attracting small companies that have not been established for a long time but have a good growth outlook. According to Dealogic, the financial data provider, a total of 87 companies have raised 8.5 billion dollars since the gem market opened for six months. But gem trading has been erratic and highly valued.　　The problem, commentators say, is that regulators continue to dictate the board's deal, rather than making sure that listed companies meet a set of standards and let markets decide the fate of those companies. China's gem is not immune from a general slowdown in Asian equities, but many companies are still rushing to market and investors are jumping to buy new shares. Since April 30, nine companies have completed the Gem IPO pricing, and waiting for listing transactions.　　In contrast, in recent weeks, a large number of companies in the Hong Kong market have postponed IPOs and stock-issuing plans, including the $3 billion Swire properties 2¥q's IPO plan. High volatility has been a common occurrence of China's gem. The Chinese film producer Shanghua Brothers Media Corp., which has repeatedly launched the films of big stars such as Jackie Chan and Zhang Ziyi, huayi $176 million last October and doubled its share price on the first day of the IPO.　　The enthusiasm of investors to make new shares in the gem has been so high that companies that are preparing for the IPO have increased the size of IPOs. One reason for attracting issuers is the high price/earnings ratio of gem stocks. The gem's trading figures show that the board shares an average of 59 times times the current earnings ratio, although it is still well above other trading markets, even though it is down from the high price-to-earnings ratio of more than 100 times times this year, such as the Morgan Stanley Integrated Asia Pacific index (excluding Japan) (MSCI AC Asia Pacific Index ex　　Japan has a 19 times-fold earnings ratio, while mainland companies account for a large share of Hong Kong's Hang Seng Index, which is only 13.9 times times earnings. Commentators also explain why they think the regulatory system has created the unique situation of the gem.　　Fundamentally, they say, market regulators have chosen bullish companies for IPOs, giving them a sense of government support and restricting new offerings. All of this has been a boost for speculators and for the use of special relationships to scramble for IPOs, an old malady in China's domestic stock market.　　"The imperfect opening of the gem is a wake-up call for regulatory authorities," said Hu Shuli, a Chinese financial journalist and commentator, after opening the gem. The CSRC said it expects some volatility in the new gem, but the SFC will try to control the risks and keep the gem within manageable limits.　　Neither the SFC nor the GEM has responded to requests for comment. The problem of gem represents the deficiencies in other Chinese markets and givesChina's domestic investors and global investors have created problems.　　Global venture capital firms and other foreign investors will eventually need a stable, functioning open market to exit investment in Chinese start-ups. It may be too much to ask for a new gem to solve the problems that have existed since the founding of the Chinese market.　　"Speculation is a way of life in China and it will never be a pure market system because the essence of China's regulators is to intervene," said Howie Fraser Howie, one of the authors of China's privatization: Insider privatizing China.　　He said it might not make sense to expect regulators to try more market-based pricing on a gem that is less stringent on the market. Howie that the establishment of the gem in Shenzhen is to maintain the participation of the Shenzhen Stock Exchange.　　The main board of the Shanghai Stock Exchange is much faster than Shenzhen, with a market capitalisation of about four times times higher than Shenzhen. The idea of the gem is theoretically good. Because China's state-owned banks rarely provide financing to small Chinese companies, these companies have limited access to capital.　　Chinese banks prefer to lend to other government-backed companies because they can provide de facto government guarantees, while banks have limited flexibility to raise interest rates to cover additional risks. Chinese investors are looking for new investment options for their savings.　　Since Chinese investors are not free to invest abroad, the retail-investment bond market is still in its infancy, with most investors opting for either equities or real estate.　　In the short term, the gem winners are speculators who have a broad relationship and are able to take advantage of IPOs and those who want to get rich overnight; the losers will be investors who buy at highs and want to sell to the more stupid. In the long run, the losers will be those that want to build a reliable long-term funding path, as well as Chinese investors seeking to buy into the strong growth of corporate equities.