Vegetable supplier Goal Forward Holdings Ltd, whose shares jumped 1,500 percent on their October debut, is trading 20 percent below its offer price.

It's a pattern that plays out regularly on the city's exchange for small companies.

Concentrated holdings, preferred investors during initial public offerings and low trading volumes all contributed to the roller-coaster performances, which have caught the attention of the city's chief regulator.

Ashley Alder, head of the Securities and Futures Commission, said last month he wants his agency to look at the issues connected to the GEM. The scrutiny comes as mainland investors start to trade the city's small-cap shares through the stock-trading link with Shenzhen that opened on Dec 5.

"You can see now nobody would chase or buy stocks on the Growth Enterprise Market if they aren't crazy enough," Ringo Choi, Asia Pacific IPO leader at Ernst & Young Global Ltd, said in a Dec 12 interview in Hong Kong. "Speculators obviously win big time."

Eighteen of the 20 top global IPO debuts this year are from GEM listings, all of which recorded a first-day gain of at least 500 percent, according to data.

But the surges rarely last. For example, Expert Systems Holdings Ltd, a provider of technology infrastructure, jumped 1,100 percent on its April 12 debut but is now 16 percent below its offer price.

The initial moves "created the misleading illusion for Hong Kong investors that whatever's going up must be good－or that whatever goes up, must go up even further," said Mike Leung, an investment manager at local brokerage Wocom Securities Ltd. "A lot of investors don't understand the market that well."

An external spokeswoman for Goal Forward said the company's stock price is solely determined by the market, adding it believes the stock market is promising and will continue to develop.

While Alder has voiced his concerns, officials at bourse operator Hong Kong Exchanges & Clearing Ltd have suggested a review of its second exchange, though without providing concrete promises. HKEX chairman Chow Chung-kong said a decision on whether to hold a GEM consultation would be made early next year, the city's Oriental Daily newspaper reported on Dec 11.

Many in the market say the issue is the closely-held nature of GEM companies, and the fact that IPO placements see shares handed to a small group of hand-picked investors. The SFC made eight announcements this year about companies on the exchange that have highly concentrated shareholdings, alerting investors that share prices could fluctuate substantially and that they should exercise extreme caution.

"They need to review the way placements are done, so the first-day value of a company is reflected more accurately," said Bernard Pouliot, chairman of Hong Kong Securities firm Quam Ltd.

Bloomberg