The impending launch of the Growth Enterprise Market Board is driving investors into a fever of excitement. But experts are calling for caution. Regulations reflect this, with investors for the GEM board required to meet specific requirements before they are allowed to put their money in.
The launch of the GEM board will definitely soak up liquidity.
But industry insiders say it won't divert much capital from the main board.
Companies that list on the GEM board usually raise 100 million yuan on average, much less than those on the main board.
Yin Zhongli, Researcher of Finance Research Center of CASS said "The turnover of the main board actually exceeds 300 billion yuan a day. If the first batch to list on the GEM board has 100 enterprises, the combined capital they raise will be less than a fourth of that of China State Construction Engineering Corporation, which will soon go public on the main board."
In addition, China's stock markets have abundant capital at present. Mutual funds have raised over 200 billion yuan of capital so far this year, more than the total of the last year.
The stock market is also on a bull run. Growth from last October has topped all the world's stock markets. The launch of GEM board is also expected to drive up some chips on the small and medium sized enterprise board. But experts say there's always a risk.
Peng Yanping, Director of China Securities Research Co., Ltd. said "The board is challenging, because of the risks. But the growth potential is also high. So it has a high P/E ratio level."
A high P/E ratio means the market give a high pricing of the stock. The average P/E ratio of the Shanghai Stock Market is nearly 29, but that of Shenzhen Stock market exceeds 40 because of the growth potential of shares of small and medium sized enterprises.
The securities regulator requires investors to have 2 years of stock trading experience before they invest in GEM board, because the fluctuation may be wild.
Take the case of China's Sina and Netease. The two Internet chips listed on the Nasdaq have the experience of losing more than 90 percent of their value, or rising over 20 times.