(Yicai Global) July 14 -- The ChiNext Index [SHE: 399006], which tracks growth enterprises listed in Shenzhen, surged to 3,560.88 points in early trading yesterday, briefly surpassing the Shanghai Composite Index for the first time ever. 

Analysts believe the main driver of the ChiNext’s strong performance is the structural transformation of China’s economy, with emerging industries like electric power equipment, new energy, semiconductors, and biomedicine.

After hitting the new high, the ChiNext fell back, ending down 0.8 percent at 3,554.98. The Shanghai Composite gained 0.5 percent to 3,566.52.

The Shanghai Composite is tilted toward traditional cyclical industries such as finance, real estate, and consumption, while medicine, electric power equipment and electronics are the top three weighted industries in the ChiNext, Zhao Dongmei, an analyst with Guoyuan Securities, told Yicai Global.

Some large-caps in emerging industries have grown into new blue-chip stocks and have taken leading roles in the market, Zhao said. Following these stocks, the ChiNext has embarked on a strong upward trend.

Traditional blue-chips, including the SSE 50 Index and the CSI 300 Index, have repeatedly fallen to new lows, suggesting that the economy may gradually decline in the second half from a phased high, Zhao added.

Capital Change

Economic contraction often heaps more pressure on traditional industries, such as financial services, infrastructure and construction-related sectors, as well as some consumer industries, he said.

Strong performers this year like electronics, electrical gear and new energy account for nearly 70 percent in the ChiNext, according to Wind data.

Zhao pointed out that the big difference between the rise of the ChiNext this time and that in 2015 is the capital structure. That time the capital was mainly leveraged funds. Now it is institutional funds and residential assets entering the market.

Wei Fengling, a strategist at Pengyang Asset Management, told Yicai Global that current policy emphasis and support for the capital market is unprecedented. 

There are no serious irregularities and leverage as in 2015. And although local valuation is high, there is no overall risk of a bubble, Wei said.

Even if the ChiNext fell immediately after the record high and closed slightly lower yesterday, industry insiders believe it will not be affected in the short term and will maintain an upward trend.

Zhang Yufeng, chief strategist at AVIC Securities, told Yicai Global that the index may fall in the short term, but the space for that is quite limited, and the upward pattern of mid-term volatility will not change.

Editor: Peter Thomas