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Why newly listed Chinese stocks fall below their IPO prices

Investors get lesson in caution as buying new shares no longer one-way bet

This year, as of April 20, 62 out of 107 companies that went public on the Chinese mainland saw their share prices drop below their offer price.   © Reuters

Investing in Chinese initial public offerings was once hailed as the safest of safe bets, with guaranteed huge returns to investors. The rationale was that the stock of a newly listed company would almost certainly rise well above its offer price, a pattern that had held true in most cases for many years.

But this formula has not always been successful in recent times.

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