The Shenzhen Stock Exchange has moved to stamp out wild trading by ordering the suspension of three small companies less than three weeks after it doubled the daily trading band of its technology board.
Trading of shares in Xinjiang Tianshan Animal Husbandry Bio-engineering, Shenzhen Changfang Group and Zhengzhou Sino-Crystal Diamond was halted from Wednesday on the ChiNext board after the stocks skyrocketed in recent days, according to a statement on the website of the Shenzhen bourse.
It is the second time this month that shares of Xinjiang Tianshan have been suspended after the cow-breeding company surged almost sixfold in the past three weeks. Shares of Shenzhen Changfang, a maker of light-emitting dioxide products, have jumped by the new 20 per cent daily cap every day over the last week, while the stock of Zhengzhou Sino-Crystal has surged by that amount for three consecutive days.
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The frenzy has highlighted the speculative mood on the ChiNext board after the securities regulator eased trading restrictions by doubling to 20 per cent the limit on how much a single stock can rise or fall every day. The move may have led to punters placing speculative bets on smaller companies to seek profits from bigger price swings.
In the case of Xinjiang Tianshan, retail buying accounted for 97 per cent of the stock’s transactions over the last week, and the shares were held for only between one and three days before being sold, according to the Shenzhen exchange.
“The Shenzhen exchange has again reminded investors of [the importance of] risk awareness and adhering to value investing,” the bourse said in a statement on its website. “It is advised not to speculate on small caps and poor-quality companies to avoid unnecessary losses.”
Xinjiang Tianshan, Shenzhen Changfang and Zhengzhou Sino-Crystal all posted first-half losses this year and warned of no immediate improvement in corporate fundamentals.
The ChiNext index tumbled 4.8 per cent at the close on Wednesday, its steepest loss since July 24, as the Shenzhen exchange’s move cooled speculative sentiment on the year’s best performer among the equity gauges of Chinese onshore stocks. The sell-off followed an overnight rout in US technology stocks, whose highflying valuations sparked concerns about a bubble.
“The gains are excessive and the valuations are stretched,” said Zeng Wanping, an analyst at China Galaxy Securities. “Even for the good-quality companies whose shares have risen more than 200 per cent, the optimism has been priced in.”
The ChiNext had surged 47 per cent this year, up to Tuesday, lifting its price-to-earnings ratio to 60.8 times. The multiple is four times that of the benchmark Shanghai Composite index. The value of the shares that changed hands on the ChiNext board reached 354.8 billion yuan (US$51.8 billion) on Monday, exceeding the daily turnover on Shanghai’s main board for the first time.
The ChiNext hosts 859 companies, while the Shanghai exchange’s main board has 1,549 listings.
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