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Experts: Overvalue leads to shares falling short of IPO prices

07-14-2010 13:55 BJT

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The prices of many new shares on China's stock market are continuing to fall short of their issuing price this year. But compared with old stock, the relative value of the newcomers aren't very high. So what's the reason for falling behind?

Prices for new stocks listed on the main board, growth enterprise sector and small and medium sector aren't particularly high compared with stocks already listed on the market. But many new stocks are falling below their issuing price. Analysts say the current situation may cause new IPOs to be priced lower.

Yin Guohong, Dongxing Securities said "I think the recent trend of stock prices falling below their issuing price might promote reform of newly issued stock. And this will lead to a lower issuing price for the new shares. As a sophisticated market, it's normal for the issuing price to be 10 percent lower than the average price in the secondary market."

New shares in the primary market have been performing well for some time, and investors have backed them strongly. That confidence is pushing the new stock price higher and higher.

Huang Xiangbin said "I think the ongoing trend of falling below the issuing price is good. As it happens more, the price and valuation of new stock might return to normal in the primary market."

Yin Guohong said "I believe that promising companies' initial public offering price can be high. But for poor performing companies, their stock price should be dragged down. That's the market mechanism and issuing mechanism."

The earnings multiple in April was generally high across the board, but that is now keeping to a downward trend. This is a sign the valuation of the market is going in the right direction.

Editor:Xiong Qu |Source: CCTV.com

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