New board to focus on information disclosure, rather than profitability

Investors looking for opportunities in the A-share market will be busy this week as a total of 22 newly listed companies are open for subscription during trading.

Shanghai-based e-glass fabric maker Grace Fabric Technology, which was offered on Tuesday, is the only A-share main board listed company. The 21 other firms will be listed on the technology-focused STAR Market at the Shanghai Stock Exchange.

On Wednesday alone, nine STAR Market listed companies will be open for subscription, a daily record at the Shanghai bourse.

Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, said the new board's emphasis on information disclosure rather than profitability and the initial public offering pricing system is a sign the Chinese stock market is becoming more market-oriented.

But Dong warned investors should raise their risk awareness and avoid speculative trading.

"The IPO pricing of the new board is market-based, meaning that it is no longer subject to administrative approval. So it requires that investors must have greater risk awareness and tolerance," Dong said.

Chu Zhipeng, an analyst of the secondary market research at the Shanghai-based financial service provider Noah Holdings Ltd, said the mid to long-term prospects of the A-share market are improving.

Dai Kang, chief strategist of GF Securities, said the pharmaceutical and technology companies to be listed on the STAR Market have higher PE ratios than their counterparts listed on the other boards of the A-share market.

The Beijing-based China Railway Signal and Communication Corp Ltd has the most attractive PE ratio of 19.06, with the industry average at 37.96. CRSC planned to raise 10.5 billion yuan ($1.5 billion) via a public offering of shares on the STAR Market.

Shanghai-based semiconductor manufacturer Advanced Micro-Fabrication Equipment Inc, however, has the highest PE ratio among the companies at 119.19, while the industry average comes in at 31.81.

Initiated in early November, the Nasdaq-like STAR Market was officially launched on June 13. The Shanghai bourse said on July 5 that the first 25 companies, whose IPO registration has been approved by the China Securities Regulatory Commission, will start trading at the Shanghai exchange on July 22.

The launch of the STAR Market in Shanghai was seen by analysts as a milestone event in the development of China's capital market. The board in the long run will likely have significant impact on the A-share market's valuations and investment choices.