Of the 25 stocks listed so far on GEM, only five are above their issue prices, and the GEM index has under-performed the Hang Seng.

Timothy Sun, director of Internet research at BNP Prime Peregrine, said that investors had become much more selective, and instead of working on multiples of revenue, were beginning to apply classical indicators such as EBIT, cash flow, and the support of strong, committed shareholders (what BOO.com looked for in vain!).

Meanwhile, the stock exchange issued a consultation paper on GEM yesterday, proposing a number of measures designed to encourage interest in the fledgling market.

The proposals include halving the required 2-year operating record to one year before listing, increasing the permitted number of employee share options to 30% from 10%, allowing share sales by founding management after six months rather than two years, and, in response to complaints from Internet companies listed on GEM, to allow the issue of new shares during the first six months after listing for the purposes of making acquisitions, provided that control of a company does not change.

The stoxk exchange had been intending to give case-by-case exemption from the six-month issuance rule, but the Securities and Exchange Commission told it to change the rules instead.

The relatively poor performance by GEM so far has to be seen in context since it was launched at the height of Internet fever: high-technology shares have fallen dramatically in value in bourses around the world, and GEM stocks have fared no worse than equivalent titles in other high-tech exchanges. The Internet is here to stay, and once the current shakeout has finished, GEM will probably be a better long-term bet than the Hang Seng.