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China’s ChiNext market goes ‘crazy’ in first week

An investor stands in front of a screen showing stock indexes at a trading house in Shanghai on Oct. 9. PHOTO: AFP

China’s new NASDAQ-style market saw a week of wild swings as frenzied investors sent the start-up shares to “ridiculously” high levels, analysts said, warning that a correction is on the cards.

The 28 stocks on the ChiNext board in the southern boomtown of Shenzhen repeatedly tripped circuit-breakers in place to curb rampant speculation as keen buyers ignored warnings from regulators to trade in a “rational” way.

After a massive debut surge for all shares on Oct. 30, with some soaring as much as 210 percent amid feverish buying, subsequent sessions saw stocks see-sawing up and down by the 10 percent limit in place on all Chinese bourses.

“I think it was crazy — the rise was ridiculously high,” said Peter Lai (黎永良), a director of DBS Vickers in Hong Kong. “Chinese investors are not very rational.”

Yan Li, a Beijing-based analyst at Southwest Securities, said the casino-style trading “shows that investors lack an understanding of the risks.”

“Traditionally Chinese investors tend to chase after new stocks and such a trend will continue. I think the ChiNext board is very likely to see big fluctuations in the future,” Yan said.

Ahead of the start of ChiNext trade, the chairman of the China Securities Regulatory Commission, Shang Fulin (尚福林), cautioned investors by saying start-up stocks have potential for strong growth — but also unstable financial results.

The board is expected to give small and medium-sized companies access to financing and to encourage private equity firms and venture capitalists to back start-ups, in the tradition of New York’s NASDAQ.

The first 28 companies to list on the board, ranging from movie producers to medical equipment makers, raised about 16 billion yuan (US$2.3 billion) in their initial public offerings — more than double initial forecasts.

Observers had been worried that ChiNext would draw funds away from the main boards and depress share prices. But so far, the second board appears to have had little impact on main board trading.
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