ChiNext faces bubble risk

BEIJING - China's ChiNext Board, a Nasdaq-style index tailored for growth enterprises, is facing increasing bubble risk 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 the year, the index has increased more than 98 percent.

The jump of the secondary market came against a backdrop of sluggish performance of the main board this year and almost one year of suspension of initial public offerings. The benchmark Shanghai Composite Index has slumped nearly 2.9 percent since the beginning of the year.

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 report.

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 telecom.

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 the China Southern Asset Management, a Shenzhen-based fund management company.

The report by the company also warned that signs of profit-taking on the ChiNext Board are emerging, leading to bigger risks.