Reforms to strengthen ChiNext

Bourse looks to bring more enterprises focused on innovation under its fold

Groundbreaking reforms and a possible market uptrend are dawning for Shenzhen's ChiNext, after the innovative enterprise-heavy board marched into its second decade of development on Wednesday, analysts said.

The ChiNext Index ended down 0.99 percent at 1650.29 points on Wednesday, as the board marked its 10th anniversary. Biotechnology shares led the losses, while firms with the potential of being involved in reverse mergers went up on the back of recent government policy relaxation.

Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, said the 10-year old ChiNext has entered an ideal reform window after the central government decided to build Shenzhen into a demonstration pilot zone for socialism with Chinese characteristics.

"The Shenzhen Stock Exchange should grab this strategic opportunity to accomplish an overhaul and repositioning of the ChiNext," Dong said.

He said that although the ChiNext has supported the country's innovation-driven growth over the past decade, its inclusiveness to innovative enterprises should still be strengthened.

The ChiNext, whose name came from "China Next", was launched on Oct 23, 2009 as part of the country's effort to facilitate the financing of high-tech and innovative enterprises. On Oct 30, 2009, the first batch of 28 listed firms, with a market capitalization of about 140 billion yuan ($19.8 billion), began trading.

As of Wednesday, 775 firms are listed on the ChiNext with total capitalization of 5.6 trillion yuan, about 40 times the level 10 years ago. The board is dominated by small-and medium-cap innovative enterprises and startups, data from market tracker Wind Info said.

Many innovative companies, nevertheless, could not get financing on the board even if they meet initial public offering standards, given the scarcity of IPO regulatory approvals under the approval-based IPO system.

Volatility is a steady presence given the limited pool of listed firms. The ChiNext Index hit a historic high of 4037.96 points in June 2015 but then more than halved over the following three months.

Dong said the Shenzhen exchange should speed up in pushing ahead registration-based reform on the ChiNext to improve the situation, in line with the example of the trial registration-based IPO system of the sci-tech innovation board, or the STAR Market, on the Shanghai Stock Exchange.

The ChiNext should also take advantage of the fact it is serving small-and medium-sized innovative enterprises, especially those capitalized at less than 1 billion yuan, to differentiate itself from the STAR Market, he said.

China Securities Regulatory Commission Vice-Chairman Li Chao said at a forum on Sunday that the top securities regulator will pilot the registration-based IPO system on the ChiNext while stepping up other reform efforts on the board.

The CSRC will improve fundamental rules regarding stock issuance, mergers and acquisitions, restructuring and refinancing on the ChiNext, Li said.

The commission has kicked off the reforms by allowing qualified companies in high-tech and strategic emerging industries to list on the ChiNext through reverse mergers from last Friday.

As reforms accelerate and as the ChiNext's valuation level has become "attractive" after several years of downward adjustments, a new bullish trend may beckon investors to the board, said Yang Delong, chief economist at Shenzhen-based First Seafront Fund.

"There are many firms with solid fundamentals listed on the ChiNext, which may record strong market performance in the future," Yang said in an article.

After declining for three consecutive years, the ChiNext Index had advanced 31.97 percent by the close on Wednesday since the beginning of this year, outperforming a 17.95-percent rise of the benchmark Shanghai Composite Index over the same period.