Star market debuts are showing weak performances. A fund manager at an insurance fund said that a late share sell off on a stock’s debut would trade below the issue price. So, when the fund managers expect rebounds the next day, the shares drop more. A vice chairman of the CSRC, Fang Xinghai at the 2022 Boao Forum also noted the situation. He said that the weak debuts indicate that institutional investors should improve deal pricing.
He urged that if the market refuses the price, institutional investors should at least lower the price. Some analysts said that the institutional investors value Star and ChiNext IPOs too high. Struggling companies who are less likely to be profitable tend to trade below their IPO prices on debut.
Among the 16 stocks, seven are unprofitable companies, said IFR Asia. The profitable companies, however, had at least an average P/E of 105.7 times. It doubled the 41.2 average of the industries. Companies on the main boards are mostly pricing at a P/E of 23 times during the period. Therefore, only a few companies would trade below water.
With the above’s scenario, A-shares in CNOOC for instance soared 27.7% on their trading debut. CNOOC is China’s top offshore oil and gas producer. Their issue price is equal to the company’s net asset value per share last year. An ECM banker believed that market forces would set the pricing of Star IPOs at the right valuation.
That means, if fewer deals trade below the issue prices in a given month, the investor would offer aggressive quotes. This would inflict more deals trading below water. In addition, the investor would return to become conservative again.
