Chinese Tech Stocks Poised to Surge in Next Bull Market

Despite a broader slump in local equities, shares of China’s small and medium-sized companies are poised to enter a bull market. The Beijing Stock Exchange 50 Index, which tracks early-stage innovative companies listed in the capital, rose 3.1% on Monday, with gains of over 19% from an October low. This index has outperformed its larger, tech-heavy peer by 12 percentage points and the benchmark CSI 300 Index by 16 percentage points, making it a bright spot in China this quarter.

The strong rebound on the Beijing board this month can be attributed to several factors. Firstly, the wider fluctuation range of 30% allowed for its constituents in either direction compared to a span of as much as 20% for the Shanghai and Shenzhen gauges. Secondly, investors’ light positioning in these companies and regulators’ consideration to include eligible securities into the CSI cross-market index system have also served as catalysts for growth in this area of the market.

Investor interest in these companies is evident through the largest of around a dozen exchange-traded funds tracking the index, which have assets of about 228.8 million yuan ($31.9 million). The Beijing exchange was launched two years ago with the aim of helping small firms raise funds and making China’s financial markets more multifaceted. With its strong performance this quarter, it is clear that this goal is being achieved and small firms are benefiting from increased access to capital.

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