SHENZHEN SME COMPANIES AND HONG KONG GEM COMPANIES

Shenzhen SME Companies and Hong Kong GEM Companies

Shenzhen SME Companies and Hong Kong GEM Companies

Summary

• SME company reported earnings in FY2003, whilst almost half of the GEM companies reported losses. Compared to SME companies, GEM companies in general have lower share prices, smaller market cap and lower market turnover. (Boon 2005)

• The different characteristics and the contrasting performance are mainly attributable to some fundamental differences such as:

?? The listing requirements of the SME Board and the GEM Board;

?? The rules and regulations governing the two boards; and

?? The investor mix and the investor behaviour of the two markets.

The listing requirements as well as the rules and regulations for the SME Board are in general more stringent than those for the GEM Board.

Objective of the Study

The Small and Medium Enterprise (SME) Board was launched in Shenzhen on 25 June 2004 to assist smaller growth companies in China to raise capital. (Boon 2005) Some are concerned that there might be competition between the Shenzhen SME Board and the Hong Kong Growth Enterprise Market (GEM) Board. This study aims at providing some basic facts and comparing characteristics of the two markets. (Boon 2005)

Background

Due to the delay in launching the SME Board, there was a pent up demand for listings. Up to the end of September 2004, 38 companies were listed on the Board. However, IPOs on the Mainland stock markets were suspended during September 2004 - January 2005, as regulators prepared new guidelines governing the pricing of share sales. Listings on the SME Board were also halted for several months. After the resumption of IPOs early this year, there were two new companies listed in March 2005. Since our analysis is up to the end of February 2005, these two newly listed companies are not covered by this study. As of the end of February 2005, the aggregate market cap of the SME Board amounted to US$5.0 bn. The average daily turnover was US$35.6 mn in February 2005. Since its inception, the SME Board has raised US$1.1 bn. The PE ratios averaged 30. (Boon 2005)

In Hong Kong, the GEM Board was launched on 25 November 1999. As of the end of February 2005, there were 205 companies listed on the GEM Board, with a total market cap of US$8.5 bn. Their average daily turnover in February 2005 was US$7.6 mn. Since its inception, the GEM Board has ...