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Investors seeking returns in China’s subdued equities market are driving a $25 billion rally in one of the smallest and most volatile stock segments. The Beijing Stock Exchange 50 Index, representing early-stage innovative companies in the capital, has surged over 50% since its October 23 low. Despite low interest since its launch in November 2021, volumes on the index have surged recently, prompting increased attention from financial authorities.
The Beijing Stock Exchange announced tightened supervision measures on Monday and issued warnings against abnormal trading activities, resulting in declines in Tuesday’s session. However, the relative strength index for the index remains in overbought territory.
Zhou Nan, Managing Director at Shenzhen Long Hui Fund, noted that stocks on the Beijing exchange are relatively inexpensive with a smaller float, making them easier to boost. However, he cautioned that poor market liquidity in these firms could pose a significant risk to investors.
This surge stands in contrast to declines in the broader Chinese stock market, with the CSI 300 benchmark in Shenzhen and Shanghai poised for a fourth consecutive monthly decline. Concerns about a weak economic outlook and volatile earnings continue to weigh on investor sentiment.
The recent rally in the Beijing Stock Exchange 50 Index is attributed to investors’ light positioning on the exchange, launched in November 2021 to provide financing for early-stage companies with innovative potential. Regulators encouraging mutual funds to increase their holdings on the board and the potential inclusion of some stocks in the main CSI indexes have also fueled the rally.
The index’s wider fluctuation range of 30%, compared to 20% for Shanghai and Shenzhen indexes, has contributed to increased volatility, raising concerns about a significant downturn once momentum subsides.
Despite regulatory interventions, strong retail interest suggests that any market dips may attract sidelined investors looking to capitalize on the frenzy. The WeChat index, reflecting searches on the social media platform, indicates a nearly 40-fold increase in interest in “Beijing Stock Exchange” in the past month.
Monday saw turnover on the Beijing exchange exceed 30 billion yuan ($4.2 billion), surpassing the total turnover for each of the preceding five months. The exchange lists a total of 232 firms, including Shanxi Jinbo Bio-Pharmaceutical Co. and BTR New Materials Group Co., although these stocks are not available to foreign investors through trading links with Hong Kong.
