ChiNext hikes 'swing limits'of 800 shares

China's Nasdaq-like ChiNext board's plan to double the daily fluctuation limit of its over 800 listed stocks to 20 percent from next week will not only boost market efficiency and vitality but also further reforms, experts said on Monday.

The changes will take effect as the first batch of listings under the registration-based initial public offering system make their market debut on the ChiNext from Aug 24.

"The loosened daily fluctuation limit will give sellers and buyers more say in pricing ChiNext-listed equities, vitalize trading activities and enable stock prices to attain reasonable valuations," said Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology.

Stock exchanges on the mainland have adopted the daily rise or decline limit of 10 percent since late 1996 to reduce market volatility. However, this practice has restrained the market from freely pricing the equities and dampened market efficiency, said Dong.

The Shenzhen-based ChiNext board's shift to a 20-percent limit is seen as the boldest move by China to ease fluctuation restrictions after Shanghai's smaller STAR Market piloted the 20-percent limit last year. Such restrictions are rare in overseas mature markets.

With share prices allowed to see sharper daily spikes or declines than before, ChiNext investors are expected to become more selective, a process that will boost the valuation of industry leaders while the less competitive ones may slowly lose their appeal, analysts said.

"Investors should weather the potential greater volatility by sticking to listed firms with robust financial performance and bright future earnings prospects," said Chen Li, research head of Chuancai Securities.

The loosened trading limit will be part of ChiNext's registration-based reform, which includes a slew of measures to give the market a greater say in resource allocation and facilitate equity financing of innovative firms, topped by replacing the initial public offering regulatory approval with administrative registration.

The Shenzhen Stock Exchange said on Friday that the first batch of ChiNext listings enabled by the registration-based IPO system will debut on Aug 24 and pledged to ensure a smooth and steady implementation of related reforms.

Reform measures like exempting the new shares from the daily fluctuation limit in their first five trading sessions and making shares eligible for margin trading and short selling once they get listed will also be implemented on the ChiNext from the same day.

He Qiang, a national political adviser and a professor of finance with the Central University of Finance and Economics, said the ChiNext reforms will help expand direct financing and minimize administrative controls in the capital market.

The market expects 18 firms to get listed on the ChiNext from Monday, whose IPOs have raised 20.07 billion yuan ($2.9 billion) in total. The firms are mainly in sectors like electronics, special-purpose equipment and medicine.

More companies are waiting for the registration-based ChiNext debuts. Five firms have finished registration with the top securities regulator, the China Securities Regulatory Commission, and are yet to complete the IPO process as of Monday, according to the Shenzhen bourse.

Another 16 have passed IPO reviews and are awaiting the CRSC registration, including Yihai Kerry Arawana Holdings Co Ltd, a food producer that plans to raise as much as 13.87 billion yuan from its ChiNext IPO.

Expectations over the upcoming ChiNext reforms catalyzed the rally of mainland-listed stocks on Monday, with securities brokerages, whose earnings are expected to get a boost from the reforms, leading the rise. The benchmark Shanghai Composite Index surged by 2.34 percent to 3438.8 points, while the ChiNext index rose by 1.04 percent to 2696.39 points.

Analysts also cited the bigger-than-expected liquidity injection by the People's Bank of China, the central bank, on Monday as a key driver of the rally, as the move dispelled concerns that the PBOC is rolling back support for the real economy.