Investors Beat Quick Retreat From China's Riskiest Stock Board

(Bloomberg) -- Investors abruptly retreated from one of the Chinese stock market’s most speculative venues on Tuesday afternoon.

The Star market closed down 8.7%, according to a market-cap weighted index compiled by Bloomberg, reversing an earlier gain of as much as 5.5%. The new venue had -- until the final hour of trading -- provided China’s battered equity investors with shelter from wider market losses elsewhere on the mainland over the past five sessions.

Beijing’s deteriorating ties with Washington and the yuan’s tumble below 7 a dollar have pushed the benchmark Shanghai Composite Index to a five-month low. Investors had been flocking to the Star market, which was launched last month. The interest persisted even though stocks on the board trade at an average of 116 times earnings compared with 13 times for the Shanghai Composite.

"The Star market has become a game of hot potato," said Zhang Yankun, a partner at Beijing Hone Investment Management Co. "As stocks on the main board looked oversold today, some of the investors who reaped generous gains from the Star market could be cashing out and preparing to shift back to the main board."

The testing ground for regulators has been met with much fanfare and frenzied trading since its inception, with stocks surging an average 140% on the first day. The venue is the only place where shares can trade freely in the first week, with a cap of 20% in either direction imposed afterward.

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