Chinese tech, chip stocks slide as U.S. yields surge

In a remarkable 1,700% surge, shares of ShenGu Group, a state-owned Chinese compressor maker, skyrocketed following its debut on the Shanghai Stock Exchange last week. The unprecedented share-price rise drew attention to the risks associated with new listings and prompted the exchange operator to intervene, aiming to curb speculative trading. The Shanghai bourse stated its intention to monitor the stock closely and impose disciplinary action if necessary.

ShenGu Group, based in northeast China's Liaoning province, specializes in high-end manufacturing, producing centrifugal compressors utilized in energy and chemical production, as well as pumps for nuclear power plants. The company's IPO price of 4.39 yuan was the lowest among IPOs this year, while the 211 million shares offered represented merely 6.8% of the company's outstanding shares. This relatively small share float made ShenGu's stock particularly susceptible to manipulation and vulnerable to speculative trading.

The Shanghai bourse's response to the frenzied trading activity included suspending certain trading accounts deemed responsible for the abnormal movement. ShenGu Group promptly issued a warning to investors, cautioning them about the high investment risk, citing a price-to-earnings ratio of 243 times, significantly higher than the industry average of 41.7. The surge in ShenGu's stock continued for two days, with a 374% increase on its debut day and an additional 178% on the following day.

Despite the dramatic price rise, ShenGu reported a 2.3% decline in first-half profit from the previous year, totaling 280 million yuan (US$41.7 million). The company expects its full-year profit to fall between 11% and 15% due to a weak macro-economic environment. Analyst Li Chengshu from Nanjing Securities explained that the demand for ShenGu's compressors is expanding beyond traditional petrochemicals to low-carbon and emerging scenarios as the world transitions to green energy.