The price earnings ratio of the ChiNext, China's NASDAQ-style board tailored for innovative and high-tech companies, is reportedly about to fall below that of the NASDAQ Composite Index for the first time ever. As China's securities regulators are expected to strengthen oversight and reduce financial risk under new guidelines issued after a policy meeting that is only held every five years, squeezing the bubbles out of the ChiNext may still take some time.

As of the close of trading on Friday, the price-to-earnings ratio - a major valuation indicator - of the ChiNext index was 36.2, compared with 34.3 for the NASDAQ Composite Index. It was the narrowest gap between the two, according to a Bloomberg report on Monday.

Since the beginning of this year, the NASDAQ index has risen by more than 17 percent, while the ChiNext index had declined by 14.05 percent as of Monday.

The pace of declines on the ChiNext picked up in July, with a loss of 7.24 percent recorded so far this month.

In July, heavyweight companies traded on the ChiNext mostly reported or warned of disappointing first-half financial results, letting some of the air out of their stock bubbles and dealing a blow to investor sentiment. For instance, Guangdong Wens Foodstuffs Group said that its first-half profit may have decreased by nearly 78 percent year-on-year to 1.6 billion yuan ($237.07 million). The statement drove its stock down by more than 17 percent to a low of 19.40 yuan on July 18. Meanwhile, Leshi Internet Information and Technology, the listed arm of the debt-ridden LeEco group, warned of a potential loss of up to 642 million yuan for the first half. Trading in Leshi has been suspended since April, and the resumption of trading is seen as one of the biggest risks facing the entire board, raising concerns over a potential market stampede.

All these developments clearly point to the high risk of bubbles on the ChiNext, which was originally intended to allow investors to discover high-growth technology companies.

The National Financial Work Conference, which ended on July 15, put a lot of emphasis on curbing financial risks and enhancing financial regulation, which is exactly what ChiNext needs if regulators hope for a genuine revival of the board.

Without the foundation of a sound business performance, it is inevitable for ChiNext companies' shares to drop, and without the prevention of financial risks, the true valuations on ChiNext will be obscured by bubbles.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn