(Yicai Global) Sept. 4 -- The abnormal volatility of individual stocks traded on the ChiNext board amid a surge in speculation will be fleeting so long as regulators have zero tolerance for violations, according to market participants.

In view of the regulatory tendency toward non-intervention in trading behavior, the market has been prone to speculation since the ceiling on daily price moves was widened last month, the head of the proprietary trading department at a listed securities trader told Yicai Global.

The Shenzhen Stock Exchange doubled the daily trading limit on the Nasdaq-style ChiNext to 20 percent. Some low-priced, low market capitalization stocks have been volatile since the change was made.

Take for example Xinjiang Tianshan Animal Husbandry Bio-Engineering [SHE: 300313], which has become a target for speculators. The firm’s shares hit the upper limit for nine straight trading days from Aug. 19, with daily gains widening to 20 percent after Aug. 24, lifting them 300 percent in the period.

The Shenzhen Stock Exchange has added the Changji-based company to a list of stocks that need monitoring and will quickly report any violations such as market manipulation to the China Securities Regulatory Commission, it said yesterday.

Shares of Tianshan Animal Husbandry closed 3.9 percent higher today at CNY24.07 (USD3.52) each, after zigzagging between as much as a 14 percent drop and a 17 percent gain. It has a market capitalization of CNY7.25 billion (USD1.06 billion).

“Speculation on stocks with a market cap of less than CNY2 billion has intensified,” according to ChaseStone Capital Partner Yang Ruyi, who pointed out that speculators find it easy to gamble on small caps because they can go in and out of the market in a short period of time.

“The individual stocks that have been hit by speculation are low-priced stocks that are plagued by performance losses and even negative news and most speculation is done by manipulating media reports,” said a partner at a private equity fund in Beijing.

Speculation would decline if all Chinese mainland stock markets adopted a 20 percent trading limit, experts interviewed by Yicai Global said, citing the speculation on the ChiNext board.

A 20 percent cap should not pose too much of a problem for mainland bourses, the Beijing PE fund partner added.

“After two to three months, the market would be familiar with the new ChiNext stock market system, and it could be implemented gradually on small and medium enterprise boards, before finally launching on the main boards,” he said.

Editors: Tang Shihua, Peter Thomas