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Shenzhen’s ChiNext debuts new rules and shares rally

posted onAugust 25, 2020

Eighteen companies -all small-to-medium sized tech firm- began trading on Shenzhen’s Nasdaq-style startup board ChiNext on Monday (Aug. 25) in a first round of listings, gaining by an average 212% by the close. A medical equipment manufacturer called Contec Medical Systems Co. soared 2,932% from its IPO price before paring to end trading 1,061% higher, leading the gains.

The US$1.3 trillion technology board of the Shenzhen Stock Exchange doubled its daily trading band in the latest reform aimed at fast-tracking IPOs and boosting finance. New ChiNext shares are now allowed to rise or fall by up to 20 per cent in a session, having until now been limited by a 10 per cent cap. The new rules that took effect Monday give the more than 800 stocks currently listed on ChiNext more room to trade.

"We hope the ChiNext board will better serve growing innovative and entrepreneurial enterprises," China's Vice Premier Liu He wrote in a statement Monday that was read aloud by Yi Huiman, chairman of the China Securities Regulatory Commission,  at the listing ceremony of the first group of enterprises under the Reform of the ChiNext Board. "We hope it will support more quality companies to list on the domestic stock market" he added.

Experts say the broadening IPO reform will help strengthen the appeal of China’s three-decade old capital markets amid increasing scrutiny of Chinese firms in overseas stock markets and widening disputes between Beijing and Washington.

The US recently strengthened restrictions on China’s tech giant Huawei Technologies and sanctioned China-owned apps TikTok and WeChat. It has also launched an initiative to exclude Chinese tech firms that allegedly pose national security risks.

ChiNext Index

On the positive side, China said on Tuesday (Aug. 25) it agreed with the United States to continue pushing forward the implementation of the Phase 1 trade deal reached earlier this year during a call between top trade negotiators of the two countries.

As investors cheered the latest reform and relaxation of the bourse's listing and trading rules, others worry looser regulations could come with risks.

“A lot of alternate exchanges struggle, as lower standards tend to attract more fraudulent activities,” Brian Bandsma, New York-based portfolio manager at Vontobel Asset Management told Reuters.

 The ChiNext Index rose 0.63 percent to close at 2,701.6 points Tuesday (Aug.25). The ChiNext Index, together with the Shenzhen Component Index and the Shenzhen SME (small and medium-sized enterprises) Board Index, reflects the performance of stocks listed on the Shenzhen Stock Exchange.

The ChiNext was launched in 2009 to attract innovative and fast-growing enterprises, especially high-tech firms, featuring relatively low requirements compared with the main boards in Shanghai and Shenzhen. It is capitalised at 8.9 trillion yuan (US$1.3 trillion). Its rival Shanghai’s Star Market, which debuted last year, has a market cap of 2.9 trillion yuan and 159 listed companies.