SHARES in Zijin Mining Group, the nation’s second-biggest gold producer, nearly doubled in their Shanghai listing Friday but regulators, cracking down on wild speculation, intervened to prevent a much bigger gain.
The Shanghai Stock Exchange suspended trade in Zijin’s A shares for half an hour after they more than tripled from their initial public offering (IPO) price.
It was the first such intervention by the exchange in a major listing since China launched a flood of IPOs two years ago and suggested authorities were now determined to limit some of the hype around newly listed stocks, analysts said.
“The exchange apparently aims to prevent the creation of another listing bubble as crazy speculation in major companies’ listings hurt investors and the market seriously in the past,” said stock analyst Li Wenhui at Huatai Securities in Nanjing.
Zijin rocketed to a high of 22 yuan (US$3.14) in the late afternoon from its IPO price of 7.13 yuan, far exceeding analysts’ forecasts of first-day trading around 9.50 yuan.
But the exchange, citing “abnormal share price movements”, then imposed a half-hour trading suspension. It allowed the stock to resume trading five minutes before the market closed and Zijin ended at 13.92 yuan, up 95 percent from its IPO price.
A six-month bear market halved mainland stock prices before shares rebounded strongly last week, boosted by government support measures such as a cut in the stock trading tax.
Analysts believe one reason for the bear market was rampant speculation in newly listed stocks, which propelled prices to unsustainable highs on their first day of trade. When the stocks eventually came down, they dragged down the overall market.
The worst case was oil giant PetroChina, the most heavily weighted stock in market indexes, which more than doubled in its Shanghai debut last November. It lost nearly two-thirds of its value in the following five months and dropped below its IPO price earlier this month, causing panic in the market.
Analysts said that even at Friday’s closing price of 13.92 yuan, Zijin’s A shares were still hugely overvalued, carrying a premium of 103 percent over the company’s Hong Kong-listed H shares, which closed the day at HK$7.61.
The average premium of dual-listed companies’ A shares over their H shares is now 39 percent, having dropped from a peak of above 100 percent in January.
While analysts think appreciation of the yuan and the closed nature of the mainland’s capital markets makes some premium reasonable, they believe 100 percent is far too large.
“Although Zijin has the best assets among China’s gold producers and its short-term prospects are strong, its debut price is really too high, taking into consideration the recent retreat in global gold prices and the company’s high IPO price,” said Shi Weiping, gold industry analyst at Orient Securities.
The global spot gold price lingered near three-week lows below US$900 an ounce Friday, having fallen from a record peak of US$1,030.80 in March. (SD-Agencies)
