ChiNext Index declines sharply to record low

The ChiNext Index, which tracks China's NASDAQ-style exchange for fast-growing enterprises, saw its most dramatic one-day fall Monday since it was launched in 2009, after the regulatory authority announced Saturday that it would lift its moratorium on IPO approvals and push forward with reform of IPO rules.

The index closed at 1,253.93 points, 8.26 percent lower compared with the previous day, a record low. Over 200 firms listed on ChiNext fell by the daily limit of 10 percent Monday.

Analysts said the fall was due to market concerns over the restarting of IPO approvals, which had been suspended for 13 months, and also the prospect of tightened rules for IPOs.

"The restarting of IPOs caused concerns that funds might be diverted from existing stocks, and is one of the major causes for the drop of the ChiNext Index," Li Daxiao, director of research with Yingda Securities Co, told the Global Times Monday.

The China Securities Regulatory Commission (CSRC) said in a statement on its website Saturday that around 50 enterprises are expected to get listed on mainland stock exchanges in January 2014.

In another statement by the CSRC Saturday, the regulator banned backdoor listings - in which non-listed companies can gain access to market funding by buying a firm that is listed - on ChiNext.

"The ban on backdoor listings on ChiNext is another cause for the decline," Li noted.

However, Li said the tightened rules for IPOs could help restrain valuations of stocks on ChiNext, which have been overestimated since the exchange was launched.

There has been a disconnect between the relatively poor performance of companies listed on ChiNext and their share performance in the last year, based on the firms' quarterly earning reports.

In the first three quarters this year, the total net profits of all the 355 enterprises listed on ChiNext amounted to 18.79 billion yuan ($3.08 billion), less than 10 percent of the net profit reported by Industrial and Commercial Bank of China in the same period, according to data in a report Monday by People's Daily online.

However, the ChiNext index hit a record high of 1,423.97 points in the middle of October, up 94 percent from the beginning of this year, despite the ChiNext companies' modest performance.