|Profit frenzy sparks ChiNext bubble risk
China's ChiNext Board, a Nasdaq-style index tailored for growth enterprises, is facing increasing bubble risks in a profit frenzy, the China Business News reported on Thursday.
During Wednesday's trading, the ChiNext Index hit a historical high of 1,418.48 points before retreating slightly to close 2.03 percent up at 1,415.83 points. Compared to the start of 2013, the index has increased more than 98 percent, Xinhua news agency reports.
The jump of the secondary market came against a backdrop of sluggish performance by the main board this year and a suspension of initial public offerings for almost one year. The benchmark Shanghai Composite Index has slumped nearly 2.9 percent since the beginning of 2013.
The report compared gains on the ChiNext Board to the lackluster profit of the 355 listed firms on the ChiNext, with their half-year profits rising only two percent.
A two-percent profit increase cannot support a 98-percent rise of the ChiNext Index, according to the China Business News.
Speculative capital has become active under the government's general restructuring of the economy by eliminating and upgrading traditional industries while boosting emerging sectors such as those featured on the ChiNext Board with its listed companies in electronics, entertainment, games and telecoms.
Expectations for future growth of the board may be difficult to rationalize as speculation in the market has created a bubble, according to a report by China Southern Asset Management, a Shenzhen-based fund management company.
The firm also warned that signs of profit-taking on the ChiNext Board are emerging, leading to bigger risks.
Following the report, the ChiNext Index dived 2.66 percent to 1,378.15 points at Thursday's closing.
The media and entertainment sector, with many stocks listed on the ChiNext Board, closed down 6.11 percent.