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Don't fret over high PE numbers, says Greifeld

By Liu Yiyu (China Daily)
Updated: 2009-10-31 07:30

Chinese regulators and investors should be more concerned about issues like market transparency and fairness rather than worry too much over the high price-to-earnings (PE) ratios of ChiNext, China's NASDAQ-style second board, according to NASDAQ Chief Executive Officer Robert Greifeld.

"In a high PE scenario, the expectations are high on the company's growth rate as well as the management's ability to sustain it. When that expectations falter, we see high volatility in the stock price," Greifeld said in an interview in Beijing on Thursday.

The first batch of 28 firms, which debuted on Friday at the Shenzhen Stock Exchange, had priced their IPOs nearly 56 times over 2008 earnings. The much-disputed sky-high valuations of start-ups on China's NASDAQ-style board also raised concerns that excessive speculation will hobble the fledging market.

Greifeld said a PE number alone cannot reflect the valuation of a company and it would be a misnomer to assume so. It's important to use multiple measurements of valuation and not just one indicator.

"The more investors know, the better they will be able to make investment decisions and the better the market will be served. It is important for investors to understand what is implicit in this high PE," Greifeld said, adding that "valuations will become more consistent in the time to come".

The NASDAQ CEO, however, said regulatory measures should be more focused on improving corporate governance and market transparency rather than PE numbers.

Special Coverage: Launch of Growth Enterprise Board Related readings:  Investors fly as ChiNext gets off to busy start  All stocks trigger suspensions on ChiNext's debut  First batch of 28 firms start trading on ChiNext  Frequently asked questions about ChiNext

"I don't believe that there should be regulatory moves with respect to PE and we just think there should be increased efforts to encourage more education and information on the performance of the listed companies," he said.

"The advantage we have today is that information can be transmitted to all investors very quickly," said Greifeld. "If you provide enough information on the perils and opportunities of investing in private enterprises and have transparency on the financial performance of the listed enterprises, you will have a market starting the proper price sooner rather than later."

"We strongly encourage full transparency," he said.