China's new Nasdaq-style STAR Market plunges on the second trading day of Reuters

By Andrew Galbraith

SHANGHAI (Reuters) – Companies on China's new Nasdaq-style stock exchange retired Tuesday and cast out some of the huge rewards made on their unstable debut in the previous session, even though everyone remained well above the listing prices.

While 24 out of 25 companies in the Shanghai Stock Exchange opened lower, at noon, four companies managed to record gains, led by Espressif Systems (Shanghai) Co., a wireless communications chip manufacturer that jumped 1[ads1]5.1. %.

China Railway Signal & Communication Corp. posted the sharpest decline of the morning session and dropped 16.1% with the lunch break, having fallen nearly 22%. The company's shares are still 76% higher than the original share price.

Yuwei, fund manager of Olympus Hedge Fund Investments Co, said the valuation of STAR markets may remain foaming in the short term, but he expected to see decline over the next two to four weeks. On Monday, shares had an average gain of 140%.

"This is a serious bubble," he said. "Valuations do not support fundamentals. Foaming valuations benefit major shareholders, but retail investors will be burned."

Yuan said he hoped regulators would not interfere with trade and let market forces play their part.

STAR Market's debut Monday saw some stocks climb as much as 520%, and more than doubled the board's overall market value, and even exceeded the expectations of veteran dealers.

Data from the Shanghai Stock Exchange showed a margin loan with turbocharged Monday, with investors who borrowed a total of 1.51 billion yuan ($ 219.38 million) to increase their purchasing power.