China investors rush to new third board

April 14, 2016 18:03
Lackluster performance of main board listings has prompted Chinese investors to flock to third board entities. Photo: Reuters

Investor sentiment is the key to market performance besides fundamental and macro factors. Right now, the mood in financial markets, especially in China, is somewhat confused.

We receive and read a lot of economy-related information: data, comments by top officials, the interpretation of micro market moves, and so on.

While major markets elsewhere remain "stable", in China we are noticing numerous new policies and regulators' interventions.

Many of the once tiger-like mainland investors have turned into kittens now following the market turmoil in the second half of last year.

As the A-share market is like a pool of dead water, investors are rushing for the new third board.

With regulators tightening the initial public offering practices, and given the poor market conditions, only 25 new companies were listed on the main board in Shanghai and Shenzhen this year as of March.

But the number of listed companies on the new third board has climbed to 6,000.

The situation in the Hong Kong stock market is similar. Newly listed companies on GEM board drew enthusiastic investor response.

For example the Luen Wong Group Holdings (08217.HK) saw its shares rise 14-fold from the offer price on the first day of listing.

It's hard to predict the prospects of the A-share market in China.

The big caps do have the potential to rise, give the low valuations and some technical factors, but the macro economic situation makes for a case against bullishness.

As for small-cap firms with weak fundamentals, any gains will be difficult to sustain.

This article appeared in the Hong Kong Economic Journal on April 14.

Translation by Myssie You with additional reporting

[Chinese version 中文版]

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head of private banking and trust services at Hang Seng Bank