ChiNext rally in Shenzhen keeps stock traders on guard for fallout as valuation approaches 2015 peak

The ChiNext board of start-ups trades at 77 times earnings, more than four times the multiple for the benchmark Shanghai Composite Index

The ChiNext index gained 4.8 per cent last week for the best five-day performance in a month after trading rules were eased

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The Shenzhen-based ChiNext index has advanced 53 per cent this year, almost five times the gain on the benchmark Shanghai Composite Index. Photo: SCMP

Published: 9:30am, 2 Sep 2020Updated: 10:29pm, 2 Sep 2020

Traders are wary of the lofty valuations of Shenzhen’s US$1.3 trillion technology board after an index tracking the stocks completed one of its best weeks amid high-flying initial public offerings and market deregulation.

The rally in ChiNext, the 11-year-old board that hosts 868 companies, has pushed its average price-to-earnings multiple to 77 times, according to data compiled by Bloomberg. That is four times more pricey than the average of 1,496 stocks represented in the Shanghai Composite Index.

Some money managers are jittery about ChiNext’s 53 per cent advance this year that outpaced the Shanghai benchmark by five times. The risk of credit-tightening or market-cooling measures remains a concern. Bocom International, the investment banking unit of Bank of Communications, described ChiNext as a venue for speculation.

“I am not too upbeat on the broader ChiNext board,” said Wang Zheng, chief investment officer at Jingxi Investment Management in Shanghai. “When the central bank begins to tighten liquidity after the epidemic is over, ChiNext will suffer.”

While small-cap companies are key beneficiaries of record amounts of liquidity unleashed by the People’s Bank of China, the ChiNext index is just one-third shy of its record high, which it reached just before a meltdown that erased US$5 trillion in value from the broader market in 2015.

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