China Markets

China's newly-listed ChiNext shares surge in historic reform

Key Points
  • Investors piled into the first batch of companies that list on Shenzhen's tech-focused start-up board under a streamlined system for initial public offerings (IPOs) that will help make the process less bureaucratic. Trading restrictions will also be loosened.
  • But with more than 800 ChiNext-listed companies trading at roughly 60 times earnings on average — compared with 38 for Nasdaq — some market watchers warn of bubble risks.
People walk past Shenzhen Stock Exchange building on March 9, 2016 in Shenzhen, China.
Zhong Zhi | Getty Images

Shares of 18 companies surged on their ChiNext debut on Monday, kicking off a historic reform that will see Shenzhen officially challenge Shanghai for tech listings, while adding fuel to a "technology war" with the United States.

Investors piled into the first batch of companies that list on Shenzhen's tech-focused start-up board under a streamlined system for initial public offerings (IPOs) that will help make the process less bureaucratic. Trading restrictions will also be loosened.

The biggest gainer among them, automotive cable maker Ningbo KBE Electrical Technology, jumped more than 500% in morning trading.

But with more than 800 ChiNext-listed companies trading at roughly 60 times earnings on average — compared with 38 for Nasdaq — some market watchers warn of bubble risks.

"The ChiNext reform is a significant part of China's grand competition strategy with the U.S.," wrote Hao Hong, head of research at BOCOM International.

But describing ChinNext as "a venue for speculation," Hong said that "falling stock prices, instead of rising, should be the sign of whether such market reform is successful."

China's top securities regulator Yi Huiman reiterated on Monday that regulators will have "zero tolerance" toward market misbehaviors, but will not interfere with normal trading activities.

The 18 companies listed on Monday also include Contec Medical Systems, which jumped nearly 500% in morning trading, and Chengdu Dahongli Machinery, which was up about 200%.

Based on Shanghai's year-old STAR Market, the broadening IPO reform will help strengthen the appeal of China's capital markets at a time when Chinese tech firms face growing U.S. scrutiny and risk of being delisted from U.S. markets.

Abrahman Zhang, chairman of Shenzhen China Europe Capital, said the IPO reform benefited Chinese venture capitalists, who are finding it easier to raise tech-focused funds, and exit their investments via listings.

"Top policymakers are recognising that venture capitalists help boost productivity, rather than seek arbitrage," Zhang said. "One concern is that too much hot money is now chasing a limited number of quality companies in China."