Translated by Andrew Vanburen from a Chinese-language piece in People's Daily
SOME MARKET newcomers have surged in value, only to lose it all in the blink of an eye.
It's time to peel back the veil and take a look at what’s truly charging and then deflating China’s summer IPOs.
Fund managers are constantly told by their superiors to be cautious at all times, and only pursue opportunities that others have not yet appreciated for their intrinsic or potential value.
But time and time again these past few months, savvy investors of the monies of others have been stymied in their campaign to pursue the age old strategy of “buy low sell high” by the erratic behavior of a string of newcomers to the mainland’s main board.
So what’s behind all the volatility and unpredictability, and what can we garden variety, retail investors do to avoid the pitfalls of a falling chip?
Recently, Chinese shares have been in a virtual freefall, with the benchmark Shanghai Composite Index shedding another 1.3% on Monday to start off the trading week on a very sour note.
However, one bright spot on the horizon has been the performance of many of the newly listed enterprises hanging their shingles upon China’s capital markets in either Shanghai or Shenzhen.
In short, there has been a lot of hype these days surrounding IPOs in the PRC.
But not only is this primarily a function of the overall market providing pathetically little by way of competition
It is also a “fool’s gold” phenomenon akin to that in 1849 which commonly trapped the common gold digger unblessed with a discerning eye for authentic value.
Examples? There are many.
One such is Guangdong Dynavolt Power Technology Co Ltd (SZA: 002684), a manufacturer of lead-acid batteries primarily targeting the motorcycle sector.
The southern China-based firm debuted last month in Shenzhen, selling 13.3 million shares raising some 293 million yuan at 22.0 yuan per share.
In 2011, its operating income stood at 403 million yuan with net profit of 41.7 million.
But things have been supercharged of late for the battery firm, especially over the past few days.
In the 15 trading sessions since its debut in the A-share market, the share price for Guangdong Dynavolt doubled in value.
But the lead-acid listco is not alone in this regard.
Fellow Shenzhen-listed manufacturer Zhejiang Yilida Ventilator Co Ltd (SZA: 002686), a maker of central air-conditioning and industrial fans, enjoyed a similar overnight success story, but with a more “roller coaster” like intraday trading volatility.
Tianjin Motimo Membrane Technology Co Ltd (SZA: 300334), a maker of ultra and micro-filtration membranes and membrane modules, needs to be added to this list.
Rising well over 4% on Monday alone, this counter saw a market-shaking debut recently, jumping by double digits, only to be halted from trade shortly thereafter following equally precipitous falls in its intraday share price.
There is neither rhyme nor reason to the spectacular performance of these market debutantes, either in terms of their headline-producing debuts or their equally noteworthy falls from grace.
Perhaps somewhat predictably, the unpredictable nature of A-share newcomers these days is quite understandable from a broader market perspective.
In this prolonged bear market, we are all looking for the standouts, the “heroes” among the hectic throng if you will.
Therefore, we all have to be wary of pretenders to this throne, and not forget that a share price can rise or fall with the wind, but it will only stay at a certain level if the counter truly possesses the intrinsic value – the authority – to do so.
This is a valuable lesson to take to heart in this topsy-turvy market we are all witnessing.
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