From September 24th to October 8th, in just six trading days, the ChiNext Index (399006.sz) surged straight up by 66.63%, but from October 9th to October 11th, in just three trading days, the ChiNext Index plummeted by 17.62%. The volatile ChiNext Index has left many investors baffled. Investing cannot be done without preparation; having a mental abacus allows for a more rational view of market fluctuations.

What is the ChiNext Index? Why is the ChiNext Index "unpredictable"? What is the better posture for investing in the ChiNext?

The ChiNext Index originates from the ChiNext market but is not equivalent to it.

1. The ChiNext market has a long history and can be divided into two stages since its establishment.

The first stage was from October 2009 to August 2020, positioned to serve innovative and growth-oriented small and medium-sized enterprises. On October 23, 2009, the Shenzhen Stock Exchange officially established the ChiNext market, aimed at serving entrepreneurial small and medium-sized enterprises that could not be listed on the main board at the time, providing a dedicated financing channel for the development of innovative and growth-oriented small and medium-sized enterprises for the first time.

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The second stage has been from August 2020 to the present, with a precise positioning of "three creations and four news," which aligns with the major trends of innovation, creation, and creativity, and supports the deep integration of traditional industries with new technologies, new industries, new business forms, and new models. On August 24, 2020, the ChiNext market reform and the pilot registration system officially took effect, opening the 2.0 chapter of the ChiNext market. Among the changes that have the greatest impact on investors is the relaxation of the daily price fluctuation limit for ChiNext stocks from 10% to 20%.

2. Now, let's look at the ChiNext Index.

The ChiNext Index (399006.SZ) is one of the core indices of the Shenzhen Stock Exchange, launched on June 1, 2010, with the base date being May 31, 2010. The ChiNext Index is composed of the stocks of the 100 most representative companies listed on the ChiNext market, reflecting the operational conditions of the ChiNext market level. The ChiNext Index has a high proportion of emerging industries and high-tech enterprises, with outstanding growth potential.

Therefore, the ChiNext Index is not equivalent to the ChiNext market. The constituent stocks of the ChiNext Index only include 100, with the selection criteria being to exclude the bottom 10% of stocks by trading volume and select the top 100 stocks by total market value to enter the constituent stock pool. Thus, large market value and good liquidity are the labels of the ChiNext Index.As of October 11, 2024, the ChiNext Index consists of 100 companies with a total market capitalization of 5.59 trillion yuan, and an average market capitalization of 55.889 billion yuan; the overall number of companies on the ChiNext board is 1,353 with a total market capitalization of 11.52 trillion yuan, and an average market capitalization of 8.516 billion yuan. The ChiNext Index, with less than 7.5% of the company count, accounts for nearly 50% of the total market capitalization, and the average market capitalization of the constituent stocks of the ChiNext Index is about 6.6 times that of all listed companies on the ChiNext board.

In fact, among the indices that take the ChiNext market as the sample space of constituent stocks, there are many indices such as the ChiNext Large Cap, ChiNext 200, ChiNext Composite, and ChiNext Growth, but the most "competitive" is still the ChiNext Index. As of now, there are 15 ETF products tracking the ChiNext Index, with a scale far exceeding those tracking other ChiNext tracks.

Risk and return come from the same source, and high elasticity is a double-edged sword.

The constituent stocks of the ChiNext Index focus on emerging technology growth industries, covering 17 first-level industries of Shenwan, with the top three industries being power equipment (33.9%), pharmaceuticals and biology (16.2%), and electronics (9.6%), accounting for about 60% in total.

Focusing on the constituent stocks, the constituent stocks of the ChiNext Index have characteristics of "high technology," "innovation," and "high growth," such as the leaders in new energy, CATL and Sunshine Energy, and Ewei Lithium Energy; the leader in internet finance, Oriental Fortune; the leaders in medical treatment, Mindray Medical and Aier Eye Hospital, and a group of high-end manufacturing and communication leader stocks.

It can be seen that since 2011, the annualized return of the ChiNext Index is 4.83%, and the annualized Sharpe ratio is 0.25, which is higher than the Shanghai 50, Shanghai-Shenzhen 300, and CSI 500 indices, showing a higher return elasticity.

However, it can also be seen that the ChiNext Index has a characteristic of long-term good returns and large short-term fluctuations, with a very significant high elasticity feature.

Just as good and evil are the two sides of the same coin, high elasticity and high risk are the two sides of the ChiNext. Investors can only better manage their investment positions by correctly understanding the characteristics of the ChiNext and the ChiNext Index.Risk and opportunity coexist, with expectations for the ChiNext market's future performance

Assuming the risk tolerance is permissible, the ChiNext board remains a relatively better choice for a low-position rebound.

Everbright Securities reviewed the performance of the ChiNext index in five recent bull markets or rebound trends, and found that it demonstrated stronger offensive capabilities. Compared to the mainstream broad-based indices of the Shanghai-Shenzhen 300 and the CSI 500, the ChiNext index showed superior upward elasticity.

Looking at valuations and historical valuation percentiles, both the PE and PB of the ChiNext index are at historical lows, providing a certain margin of safety. As of October 11, 2024, the PE (TTM) of the ChiNext index is 31.93 times, at the 15.69% percentile over the past decade; the PB is 4.08, at the 18.43% percentile over the past decade. Overall, the absolute and relative valuations of the ChiNext index are at historical lows, offering a certain margin of safety.

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ChiNext 100 ETF Huaxia (159957) and its linked funds (Class A: 006248; Class C: 006249)

It is worth noting that as the profit effect increases and managers reduce fees to benefit investors, on October 9, Huaxia Fund announced that the management fee rate for ChiNext 100 ETF Huaxia (159957) and its linked funds (Class A: 006248, Class C: 006249) was reduced from 0.50% to 0.15%, and the custody fee rate was adjusted from 0.10% to 0.05%, effective immediately. After this adjustment, the relevant fees in the market will be reduced to the lowest standard in the industry.