Number of GEM stock debuts slashed following small-cap crackdown

New stocks rose 23% on the first trading day, down from 605% for the year through January 2017.

Bloomberg reports that volatile new stocks are disappearing from Hong Kong’s bourse following a crackdown by the Hong Kong Exchanges & Clearing Ltd. and the Securities Futures Commission in the city’s small-cap Growth Enterprise Market (GEM). 

Stocks debuting on GEM in the past 12 months rose an average 23% on their first day of trading, down from an eye-popping 605% for the year through January 2017, according to data compiled by Bloomberg. 

The tightened regulations from HKEX and SFC helped rein in extreme volatility and speculation in Hong Kong’s small-caps, said Daniel So, a strategist at CMB International Securities Ltd. Three GEM stocks surged more than 20-fold on their debuts in the year through January 2017, before authorities tightened listing requirements and probed how new shares were allocated, among other efforts. 

In the past 12 months, only four GEM listings had first-day gains above 100%. The average return after one week in the recent period was 24% compared with 466% for the prior year.

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