CRI听力: Expert: Overpriced GEM Stocks In Accordance With Market Rules

The Chinese securities regulator has announced that the country's Nasdaq-style Growth Enterprises Market, or GEM, will be launched on Friday. Some investors believe that the shares of the first group of 28 companies to be listed on the GEM were overpriced during their initial public offerings as company owners attempted to raise more money. But one expert disagrees and says the IPO prices were in accordance with market rules.




The 28 companies raised more than 15 billion yuan, or some 2.2 billion U.S. dollars during, their IPOs late last month. The total amount was 8.7 billion yuan more than what they had originally planned to raise.

Some investors say the high surplus indicates that the companies overpriced their stocks to try to raise even more money.
But Zhao Xijun, a financial expert at Renmin University of China, disagrees.

"Investors consider the future development prospects of a company when they decide whether or not to buy the company's stock. So the rights are within the investor's own hands. If the price of a stock is high, and the company's future prospects are not promising enough, the company will not achieve its financing goal."

Zhao says all the companies' IPO procedures have been in accordance with market rules. The high prices of their shares also indicate the market's abundant liquidity.

Zhao says investors will likely welcome the GEM-listed companies as a new investment channel. But he warns that they should have a relatively strong ability to evaluate the companies and be objective and reasonable in their expectations when buying shares.

Zhao says some analysts believe the launch of the new second board will take away some capital from the main board.

"If a market can provide investors with more channels to invest in and offer companies more ways to obtain financing, it would be more vital. Whether the GEM will detract capital from the main board or not, and whether it will have any impact on the main board will all be determined by investors themselves and the stocks that are more competitive."

Zhao says he has high expectations for the performance of the new board.

"I hope the GEM can better provide a platform for both investors and small and medium-sized companies. I hope those listed companies can release their true information to the public in a timely manner to guide investments. And also, intermediary agencies and managerial departments should do a better job with supervision and management."

Statistics indicate that China's small and medium-sized enterprises create three quarters of the country's innovative products every year and provide three quarters of the country's jobs.

The launch of the Growth Enterprises Market is not only a measure to address the difficulties that startups usually have in obtaining finance, but also a strategy to adjust the country's industrial structure and maintain sustainable growth.(www.hXen.com)

But experts warn that although the GEM companies are beneficial to both economic development and job creation, they have greater exposure to market manipulation. These start-ups are still less capable of dealing with market risk because they are relatively small compared with main board companies.