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Skepticism abounds over new baby
May 30, 2011, Monday
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"LIKE a baby almost ready to come into the world."
That's how Wang Jianjun, deputy director of the General Office of the China Securities Regulatory Commission, described the long-awaited Shanghai international equities board when he talked to reporters at this year's Lujiazui Forum.
Although no date has yet been set for the start of the Chinese mainland's first board for foreign stocks, the "birth" is being greeted with considerable skepticism in some quarters.
Some top analysts said they blame the advent of the new board for the recent poor performance of the Shanghai Composite Index.
The index has been on the slide since May 19 and is now at a four-month low. Critics of the new board say investors are pulling out money from the main board in anticipation of the new listings.
Then, too, the history of new equities boards in China has left a bitter taste for many investors.
The much-touted ChiNext board, which was launched in October 2009 as a Nasdaq-style platform for technology start-ups, quickly priced itself out.
When the first batch of 28 firms debuted on ChiNext, the price-to-earnings ratios for some of the small companies listed on the board shot up to more than 90.
That leaves investors wondering: If small start-up firms on ChiNext could achieve such high P/E levels, is there any reason to believe that companies lining up to list on the new international board - multinationals like HSBC, Standard Chartered, Bank of East Asia, Procter & Gamble, Unilever and Royal Dutch Shell - won't have valuations at least as high.
Concern No. 2: Who exactly will be the beneficiaries of the new board?
If the experience of ChiNext is anything to go by, they won't be the majority of investors.
The P/E frenzy that greeted ChiNext IPOs turned 74 senior executives of the listed firms into instant millionaires. Four of the executives became multimillionaires overnight.
By the end of last year, the average personal assets of chairmen or founders of all the ChiNext-listed firms reached 1.18 billion yuan (US$182 million) each, while those of general managers were around 448 million yuan, according to Shanghai Realize Investment Consulting Co.
According to the Shenzhen Stock Exchange, a total of 105 executives at 65 ChiNext-listed firms have reduced their personal stockholdings in their own companies this year by a combined 1.3 billion yuan.
Pu Zhongjie, general manager of Lepu Medical Technology (Beijing) Co, a producer of advanced medical devices, led the insider share dumping. On March 23, Pu raked in 373 million yuan by selling 15 million shares of Lepu. The company's share price has since dropped by a quarter.
Two days earlier, nine executives of Hanvon Technology Co, an e-book and touch technology manufacturer, dumped a total of 1.2 million shares, pocketing 80 million yuan. The profit gained from the share sales is almost equivalent to the 2010 net profit of the company.
For investors in Hanvon, their worst nightmare came nearly three weeks later when the company issued a statement saying that it may lose up to 50 million yuan in the first quarter. Its stock price has dived 72 percent, to 20.91 yuan, since March 21.
Well, so much for all that vaunted optimism about investors making big profits by investing in high-technology stocks. In the end, their money ended up in the pockets of company bosses and their expectations about high-growth prospects turned out to be an illusion.
According to first-quarter earnings reports, 47 of all 209 ChiNext-listed firms weren't doing well. Nine of them saw profits slump by at least 50 percent and another 18 suffered 30 percent declines. Only 99 of the companies gave assurances that profits would grow by 30 percent or more.
Cai Rongmei, editor-in-chief of Shenguang.com, a website focusing on stock market analysis, said on her Sina Weibo that the mainland's stock markets are now basically a place for fund-raising only.
"Individual investors are being played like fools, with rocketing high IPO prices and expanding bourses," she said.
"How can you expect shares to go up when the so-called 'vested interest groups' just want to jump into the markets, grab the money and leave quickly?" Cai asked.
Good question.
With such skepticism rising, just how does the China Securities Regulatory Commission think it can coax investors into putting their faith - and their money - in the new international board?
Maybe Chinese regulators could take a few lessons from abroad.
The United States Securities and Exchange Commission, for one, recently set up an internal task force to look at fraud in overseas companies listed on US exchanges, including companies engaged in "back-door" registrations, according to Luis Aguilar, a commissioner at the SEC.
Chinese firms using a back-door approach to listing in the US have raised particular concerns that bear scrutiny, Aguilar was quoted as saying.
In fact, the SEC has been investigating allegations that US stock promoters, investment bankers, auditors and law firms have joined with their Chinese partners to steal billions of dollars from American investors through stock fraud since late last year.
The US action may be a bit like "closing the barn door after the horses have bolted," but at least it sends a signal to investors that somebody is indeed watching what's going on and is ready to act in cases of impropriety.
The CSRC needs to clean up its act and show that it's ready to be a watchdog instead of a regulatory body that is simply willing to "let sleeping dogs lie."
That's how Wang Jianjun, deputy director of the General Office of the China Securities Regulatory Commission, described the long-awaited Shanghai international equities board when he talked to reporters at this year's Lujiazui Forum.
Although no date has yet been set for the start of the Chinese mainland's first board for foreign stocks, the "birth" is being greeted with considerable skepticism in some quarters.
Some top analysts said they blame the advent of the new board for the recent poor performance of the Shanghai Composite Index.
The index has been on the slide since May 19 and is now at a four-month low. Critics of the new board say investors are pulling out money from the main board in anticipation of the new listings.
Then, too, the history of new equities boards in China has left a bitter taste for many investors.
The much-touted ChiNext board, which was launched in October 2009 as a Nasdaq-style platform for technology start-ups, quickly priced itself out.
When the first batch of 28 firms debuted on ChiNext, the price-to-earnings ratios for some of the small companies listed on the board shot up to more than 90.
That leaves investors wondering: If small start-up firms on ChiNext could achieve such high P/E levels, is there any reason to believe that companies lining up to list on the new international board - multinationals like HSBC, Standard Chartered, Bank of East Asia, Procter & Gamble, Unilever and Royal Dutch Shell - won't have valuations at least as high.
Concern No. 2: Who exactly will be the beneficiaries of the new board?
If the experience of ChiNext is anything to go by, they won't be the majority of investors.
The P/E frenzy that greeted ChiNext IPOs turned 74 senior executives of the listed firms into instant millionaires. Four of the executives became multimillionaires overnight.
By the end of last year, the average personal assets of chairmen or founders of all the ChiNext-listed firms reached 1.18 billion yuan (US$182 million) each, while those of general managers were around 448 million yuan, according to Shanghai Realize Investment Consulting Co.
According to the Shenzhen Stock Exchange, a total of 105 executives at 65 ChiNext-listed firms have reduced their personal stockholdings in their own companies this year by a combined 1.3 billion yuan.
Pu Zhongjie, general manager of Lepu Medical Technology (Beijing) Co, a producer of advanced medical devices, led the insider share dumping. On March 23, Pu raked in 373 million yuan by selling 15 million shares of Lepu. The company's share price has since dropped by a quarter.
Two days earlier, nine executives of Hanvon Technology Co, an e-book and touch technology manufacturer, dumped a total of 1.2 million shares, pocketing 80 million yuan. The profit gained from the share sales is almost equivalent to the 2010 net profit of the company.
For investors in Hanvon, their worst nightmare came nearly three weeks later when the company issued a statement saying that it may lose up to 50 million yuan in the first quarter. Its stock price has dived 72 percent, to 20.91 yuan, since March 21.
Well, so much for all that vaunted optimism about investors making big profits by investing in high-technology stocks. In the end, their money ended up in the pockets of company bosses and their expectations about high-growth prospects turned out to be an illusion.
According to first-quarter earnings reports, 47 of all 209 ChiNext-listed firms weren't doing well. Nine of them saw profits slump by at least 50 percent and another 18 suffered 30 percent declines. Only 99 of the companies gave assurances that profits would grow by 30 percent or more.
Cai Rongmei, editor-in-chief of Shenguang.com, a website focusing on stock market analysis, said on her Sina Weibo that the mainland's stock markets are now basically a place for fund-raising only.
"Individual investors are being played like fools, with rocketing high IPO prices and expanding bourses," she said.
"How can you expect shares to go up when the so-called 'vested interest groups' just want to jump into the markets, grab the money and leave quickly?" Cai asked.
Good question.
With such skepticism rising, just how does the China Securities Regulatory Commission think it can coax investors into putting their faith - and their money - in the new international board?
Maybe Chinese regulators could take a few lessons from abroad.
The United States Securities and Exchange Commission, for one, recently set up an internal task force to look at fraud in overseas companies listed on US exchanges, including companies engaged in "back-door" registrations, according to Luis Aguilar, a commissioner at the SEC.
Chinese firms using a back-door approach to listing in the US have raised particular concerns that bear scrutiny, Aguilar was quoted as saying.
In fact, the SEC has been investigating allegations that US stock promoters, investment bankers, auditors and law firms have joined with their Chinese partners to steal billions of dollars from American investors through stock fraud since late last year.
The US action may be a bit like "closing the barn door after the horses have bolted," but at least it sends a signal to investors that somebody is indeed watching what's going on and is ready to act in cases of impropriety.
The CSRC needs to clean up its act and show that it's ready to be a watchdog instead of a regulatory body that is simply willing to "let sleeping dogs lie."
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