Top news of the week
China XD Electric fell below IPO price on first trading day
The stock of China XD Electric, a major power transmission equipment maker that recently raised $1.5 billion in IPO on the Shanghai Stock Exchange, closed its first trading day below the IPO price. This is certainly unusual for most Chinese investors, who are more used to astronomical first-day pops on the market. In fact, XD Electric is the first stock to fall below its IPO price on the first trading day since August 2006. In the seven months since regulators re-opened the IPO market in China last year, only nine out of more than 100 stocks that debuted on the main board and the growth enterprise board ever fell below their IPO prices.
The poor first-day performance of XD could be sending a positive signal: that the "guaranteed" positive first-day returns are a thing of the past. If this is true, this will be good for the healthy growth of the stock market. Historically, price distortions of new share issuance were common. Regulators, reluctant to see negative first-day returns to make headlines and influence market sentiment, controlled the IPO timetable, influenced the pricing by issuing guidelines on how to value new shares using PE multiples, and even suspended IPOs in a bear market.
Market recap
China’s stock market continued to suffer from worries of tighter credit supply as the government moved to tackle risks of overheating in the economy. Stocks fell for the fourth straight week. The Shanghai Composite Index dropped 4.5% to 2,989 points, the largest weekly drop in two months, while the Shenzhen Composite Index decreased 3.6% to 12,137 points. In the first month of trading in 2010, the Shanghai Index fell by 8.8% from the end of last year, while the Shenzhen Index was down by 11.4%.
Macro and industry updates
Land supply from government rose by 44% in 2009
According to the Ministry of Land and Resources, the government supplied 319,333 hectares of land in 2009 for the purposes of infrastructure, welfare housing, residential and commercial real estate. The actual supply was 44% higher than in 2008, when the housing sector was in a deep freeze, but it was below the supply of 507,333 hectares approved for 2009. The market expects the land supply in 2010 to stay flat from 2009, as the government tries to contain rampant speculation in the tier-one cities while increasing supply to smaller cities and towns.
Search engine Baidu to open B2C shopping site in 2010
Baidu will partner with Japanese online shopping mall operator Rakuten to build the ecommerce site for Chinese users, and will hold a 49% stake in the joint venture. According to third-party researcher Analysys, Baidu’s C2C site Youa, designed to gain share in the market currently dominated by Taobao under Alibaba, did not perform as well as the market had expected. In the third quarter of 2009, for example, total value of transactions on Youa represented less than 1% of the Chinese C2C market, far lower than the expected 5.8%.
