Maintaining stability

To the Chinese capital market, the growth enterprise board is a newborn in need of meticulous care. Song Liping, General Manager of the SZSE, said the next two or three years are vital to ChiNext's success or failure. On one hand, the flow of board-collected capital will be inspected, while on the other hand the board will be tested to see whether it can allure more companies with development potential that are looking to be listed.

"During this process, what we're worried about is the excessive money supply, successively launched policies supporting strategic emerging industries, which may be used by the market for speculation, and aggravating fluctuations of small company stocks, which can create unforeseen problems for the growth enterprise board," Song said.

Since establishment, ChiNext has also faced problems with high IPO prices, high price-to-earnings (P/E) ratios and high over-subscriptions. A bigger challenge may be the floating of restricted shares—company stocks used for employee incentive plans with sales waiting period after a company goes public—on November 1 and December 27 this year. By year's end, 1.43 billion restricted shares will be unlocked, while at present the number of tradable shares is 1.24 billion.

This mass unlocking echoes of a past market catastrophe. In January 2000, 70 billion restricted shares for Internet companies were desterilized in the United States, the most ever, accounting for 6.6 percent of the total market value. Internet stock prices nose-dived in March that year causing companies to liquidate their assets. The reason for the plunge is widely disputed, but many agree the impact of mass unlocking of restricted shares, especially now, should not be ignored.

Nobody knows whether ChiNext will face similar circumstances. Right now, they're just watching closely.

Song said that high IPO price, high P/E ratio and over-subscription actually reflect the evaluation problem of ChiNext, which may in turn be a result of a company's IPO price. Song hopes the CSRC will carry out reform of IPO prices and return the pricing power to the market.

The SZSE will strictly implement the system of corporate information disclosure and urge listed companies to comply with accounting principles, disclose exact information and not speculate catering to the market. The SZSE will also research market hedging tools and establish an inherent stabilizing mechanism of the market.

"Compared with those mature markets, ChiNext needs more elaboration and prudence, and the SZSE will take whatever measures necessary to maintain its stable operation, as always," Song said.

ChiNext by the Numbers

589.12 billion yuan

The market value of all 134 ChiNext-listed companies totaled 589.12 billion yuan ($87.93 billion) on October 27, 2010.

3.64 million investors

The number of investors opening ChiNext transaction accounts as of September 30, 2010, was 14.87 million, of which, 3.64 million are active investors.

99.24 billion yuan

A total of 94.76 billion yuan ($14.14 billion) in capital was raised by ChiNext-listed companies as of November 2010, of which 64.37 billion yuan ($9.61 billion) were over-subscriptions, accounting for 67.93 percent of the total.

69.23

The average P/E ratio of the 134 listed companies was 69.23 as of October 27, 2010.

489 magnates

ChiNext, by October 14, 2010, had created 489 magnates whose assets surpassed 100 million yuan ($14.93 million). The aggregate market value of the shares they held reached 283.1 billion yuan ($42.25 billion) and on average each of them held 579 million yuan ($86.42 million) in shares. Among them, 67 persons hold shares of more than 1 billion yuan ($149.25 million).

47 stocks

At least 47 stocks fell below their IPO prices at least once as of October 27, 2010.

(Source: www.cnstock.com)