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September 30, 2009

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Investors interested but not wild over GEM

INVESTORS wanting a piece of the 10 first companies to list on China's new Nasdaq-style board sought 128 times more shares than the amount on offer, but oversubscriptions fell short of the average for businesses listing on the main boards this year.

Investors applied to buy a combined 784.1 billion yuan (US$114.8 billion) of the first Growth Enterprise Market shares, compared with stock on offer totaling 6.68 billion yuan. Allocation of the shares will be announced soon. China's first equities exchange devoted exclusively to startup technology companies opens sometime next month.

"Investors are always betting that new shares will surge on their trading debut," said Lin Feng, an analyst at Aerospace Securities Co.

Startup savior

China, after years of delays, is finally ready to open the GEM in Shenzhen as part of efforts to make more capital available to small startup companies that often have trouble obtaining bank loans to develop their innovative ideas.

Still, the result of the first 10 share offers produced an oversubscription rate much lower than the average 435 times for the 24 companies that held IPOs on the mainland's two main boards so far this year.

"Some of the 10 companies reported a higher rate of subscription in the off-line tranche for institutional investors than in the online tranche for retail investors," according to a report by Founder Securities Co.

"That indicates that individual investors felt wary about the higher risks inherent in the new board and lacked confidence in stock markets when the main boards have been declining."

Record ahead

The size of combined subscriptions for the 10 companies was less than the single IPOs of some heavyweight stocks, such as China State Construction Engineering Co Ltd and Metallurgical Corp of China, which each drew more than 1 trillion yuan in subscriptions when they sold shares earlier this year.

More than 20 companies have listed on mainland exchanges this year, and a record 2 trillion yuan worth of shares will float on the bourses next month.

Many investors are worried the market is heading for a glut of stock that will depress prices. Subscription money for IPOs is frozen until share allocations are announced, locking up money that might otherwise go into daily stock trading.

The benchmark Shanghai Composite Index shed 0.33 percent yesterday to close at one month low of 2,754.54. The index has been falling steadily since it touched its high of the year in August at 3,478.

"The accelerated approval of startup IPOs has affected the main boards," Lin said.


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