Thirteenfold in Two Days: a State Machinery Maker Becomes China's Hottest Stock

The hottest stock in China right now makes centrifugal compressors and nuclear-reactor coolant pumps — and it has a nickname to match its chart. Shengu Group, a Shenyang-based heavy-machinery champion that listed on the Shanghai main board on September 17, closed its debut at 373.8 percent above its 4.39-yuan offer price. On day two it opened nearly 28 percent lower, touched 14.68 yuan, then exploded upward — the intraday high of 82.59 yuan represents a near-quintupling in a single session — before closing at 57.77 yuan, up 177.7 percent, on a turnover rate close to 90 percent. Measured against the IPO price, that is a thirteenfold gain in two days of trading, and a market value near 180 billion yuan.

Both days brought repeated intraday trading halts, and both days ended with the stock trending on Weibo under hashtags asking why it surged and whether the "explosive speculation in Shengu's new shares" had gone too far. Traders have been calling the company "Shen Gu" — "Magic Drum" (神鼓) — a near-homophone of its name that also happens to describe the price action. One retailer who bought in captured the mood: "Good news: I bought some. Bad news: not enough! I'm upset even on a day I make money. I chased more at the close — can someone let me out first on Monday?"

The mechanics behind the mania are peculiar to China's IPO system. Shengu priced at 4.39 yuan — the cheapest main board offering of the year, so cheap that a single winning allotment cost just 2,195 yuan. Of 3.11 billion total shares, only about 211 million trade freely at first, a float so thin that modest buying moves the price violently. New listings also trade without daily price limits in their first five sessions — the "C" prefixed to the ticker marks that window — which is how a stock can quadruple, crash 29 percent and rally again inside 48 hours. As one Shanghai-based trader summarized it, none of this is fundamentals pricing: "It's pricing by nerve."

There is a reason the ticker caught speculators' imagination beyond its float, though. Shengu — short for Shenyang Blower Works Group — is exactly the kind of company Beijing calls a "pillar of the nation" (大国重器): it holds roughly half the domestic market in large centrifugal compressors and about 69 percent in the shielded pumps that circulate coolant in nuclear reactors, core equipment for a country trying to prove its industry runs on homegrown technology. The mania rode a broader bull run — main-board indices climbed toward multi-year highs this week, and securities-stamp-tax revenue is up 82 percent this year — as The Paper's markets report noted, with nearly 2.1 trillion yuan changing hands across the exchanges on Thursday alone.

The skeptics have their own metaphor, and it recycles the drum. A well-known Chinese idiom for a speculative bubble is "passing the flower under the drumbeat" (击鼓传花) — the music stops, and whoever holds the flower loses. "Young people, don't join this game mindlessly," one fund manager warned on Weibo as the stock hit new highs. "Most people won't be lucky enough to escape from the top." With the stock still trading without limits for three more sessions, the drum is still beating.