This during a period when the overall A-share indices appear to have experienced a material resurgence as local punters breathe a bit easier now that the regulator seems to have overcome at least some of its inertia.
CAMC 002051 was strongly oversubscribed and rose sharply on its June 19 debut, to four times its IPO price only to experience successive 10% limit-down price drops in the following trading sessions. The share price opened 131% above its issue price, and rose to as high as RMB50 on the first day of trading, before closing at RMB32 for a gain of 332% for the day. It is now trading at around RMB17.
The Shenzhen stock exchange confirms that it is investigating possible price manipulation on CAMC. While the regulator's zeal is to be commended I'm not sure what they expect to find. CAMC's stock rocketed upwards on its first day of trading on very high volumes but then ratcheted down over the next five days as trading volume deteriorated to practically zero.
How much of this rise and subsequent fall can actually be put down to market manipulation and how much simply reflects pent up demand for new stocks is hard to say.
In CAMC's case it seems that after a wee bit of irrational exuberance over a small issue, investors came to their senses and let the shares find their own level. The same trend has shown itself in Bank of China's (BOC) A-share price, although in BOC's case the relative price movement was much smaller, perhaps indicating the same dynamics as CAMC but on a much larger stock.
Bank of China's 3988 HK, 601988, A-share listing shot to just under RMB4.0 at the opening but then declined throughout the remainder of its first day of trading to close at RMB3.8. This still represented a healthy gain of 24% over the IPO price of RMB3.08 paid by those investors lucky enough to get their hands on the shares.
The share price however has continued to decline, falling to RMB3.68 at the close of its first week July 7. During this period, BOC's Hong Kong shares also experienced some turbulence peaking as high as HK$3.7 and closing at the end of the week at HK$3.55.
The bottom line for BOC is how long investors want to play chicken. The bank is now trading at around 3.4 times book, steep by almost any standard and very high given the health – or lack thereof – of BOC's balance sheet.
The bank's internal weaknesses are balanced by its leading status among China's financial institutions, and by the strong growth of its economy, indicating strong potential returns should the bank's management improve.
Playing chicken or not, all this has been pretty good for our fledgling portfolio even though most of our stocks – like the market itself – are off from their recent peaks seen in the first week of July.
Our remaining country cousin in the agricultural sector has posted gratifying gains. Industrial Development 600543 – something of a misnomer in this case – rose to RMB6.99 after treading water for the past two months.
Baosteel 600019, our new acquisition from last month, has dropped to RMB4.25 from its July 1 peak to a marginal gain over its acquisition price. The stock has attracted a lot of attention recently; we believe the share price performance may indicate some profit taking rather than deterioration in the company's operations.
So where to go from here? We need to pick up some BOC shares, if only to keep the Red Dragon Fund at least a little representative of the A-share indices, plus we can't resist the danger of a large potentially volatile stock. So let's unwind 1,000 shares of Baosteel and use the proceeds to buy BOC in the aftermarket.
Although this skews the fund towards large cap stocks it preserves our flexibility to move into small and medium cap stocks when they become attractive. Thirsty work, which means it's time to celebrate our gains with a nice cold REEB beer – the heart of Shanghai!
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