On The Bubble Of The GEM Market And Its System Improvement

In the 1970s, the United States and other North America and European countries began to create their own GEM (Growth Enterprises Market) board vigorously in order to finance the small and medium enterprises. Nowadays GEM has developed into a board that helps those emerging small and medium enterprises, especially those fast-growing technology companies'financing market, which can not be listed in the main-board. GEM is running half a century, various countries and regions of the GEM market differentiated drastically, many of which have shut down for various reasons.On October 30th,2009, CHINEXT listed on the board the first group of 28 stocks, which marked the birth of the Growth Enterprise Market for decade-long preparation. The establishment of GEM is to improve our multi-layer capital market system and serves as an important approach in promoting innovation and rapid growth of SME. Since its launch of more than one year ago, the market has been in a crazy pursuit of it, which resulted in a time of heavy share distribution and made GEM the first stock market for the benefit. Its high PE (price earning radio) is unable to be explained by the experience of foreign GEM. Whether higher GEM stock PE will generate a new stock market bubble? It's a problem worth comprehensive analysis and discussion.By comparing different methods of stock valuation and the characteristics of GEM that the PEG Peter Lynch stock selection method is more suitable for evaluating the pricing of listed companies as benchmarks. On PEG-based stock selection method, the paper construct the PEG foam model, and selected first-listed 138companies that have their annual report of 2010 open to the public as research samples for empirical analysis. The empirical part demonstrates these stocks are grossly overvalued by the market which further validates there is bubble in the Growth Enterprise Market. Then it analyzes the reasons of bubble in the GEM from the system defects and investor speculation perspective. Finally, in view of the causes of the GEM market bubble, it put forward China's Growth Enterprise Market need to reduce listing requirements and expand its market-oriented scale, implement the delisting system as soon as possible and the strengthen the supervision and other constructive measures. On the research of the bubble problem in the growth enterprise market helps promoting the growth enterprise market's development in a healthy and stable way and make the full play of the efficiency of market allocation of resources. In addition it provides references for all types of investors to participate in the GEM market.