ValenceTech Ltd, the Hong Kong subsidiary of California's SRS Labs Inc, stated that it was withdrawing its recently announced IPO and "evaluating its options". The semiconductor manufacturer has witnessed tremendous growth in recent years and has diversified into audio and voice-related semiconductors for the burgeoning Internet technology field. The company is undoubtedly a very strong candidate for an IPO and yet its withdrawal follows hot on the heels of scrapped IPOs by Quamnet, a financial information portal, ChinaInfonet, a Web content provider and Caripac, an Internet platform provider. ValenceTech has not said whether the IPO will go ahead in the future.

All four abandoned IPOs reflect the poor performance of the 26 stocks listed on the GEM since it was launched in late 1999. The exchange has reached a critical point, with the majority of the stocks presently trading below their issue price. Liquidity of the shares is poor and recent issues have been priced at the lower end of pricing ranges.

Commenting on its withdrawn flotation, ValenceTech said 'Meetings by the Valence management team with Asian institutional investors have produced responses to the Valence IPO that are much weaker than expected.' The other companies which withdrew their IPOs echo this opinion.

Despite the flagging fortunes of the GEM, there are still 14 IPOs scheduled to take place in the coming months, including the major flotation of Phoenix Satellite Television Ltd, a satellite TV company partly controlled by StarTV, a unit of News Corporation. Moreover, two key Hong Kong firms are to spin off hi-tech companies which are to be separately listed on the GEM. Sino Technology Ltd will be spun off by Sino Land Ltd, a Hong Kong-based property company, whilst Henderson Cyber Ltd is to be spun off by Henderson Group, the vast property development company.

The market has certainly cooled, with investors exercising caution and even refraining from buying stocks, Internet stocks being a particular case in point. Six months ago investors could barely get enough of new GEM issues, with thousands of people lining up for a piece of the action. Now, however, even the better IPOs have only a modest level of oversubscription. This does not seem to cause undue concern to Lo Ka-shui, GEM's listing committee chairman, who said recently that he welcomed the fact the market had slowed down, stating 'I'm not at all worried. In fact, it's good that things are a little bit more realistic.'