File this one away in the “worth noting” folder.
Chinese equities were the only red in a sea of green on Monday morning and although the SHCOMP closed only marginally lower, ChiNext (China’s “Nasdaq”), dove nearly 2%:
As Bloomberg notes, “the ChiNext gauge of small-cap stocks [suffered] its largest intraday loss since June 1.”
The proximate cause? Probably this (out Friday):
- China CSRC Sees 9 Cos Raising Up to 6.5B Yuan in Approved IPOs
- China Securities Regulatory Commission gives written approval to four companies to list in Shanghai, including Hylink Digital Solution and Anhui Transport Consulting, the regulator says in Weibo account statement.
- CSRC also gives approvals to 1 company for IPO on Shenzhen’s SME board and 4 on ChiNext board
“The regulator approved more IPOs on a weekly basis and that’s putting a damp on ChiNext valuations,” said Zhang Gang, Shanghai- based strategist with Central China Securities told Bloomberg, adding that “investors are also worried the first-half earnings growth of ChiNext firms won’t be able to keep up with their valuations which are still at high levels.”
Yes, “valuations are still at high levels” – as in something like 40X compared to 16X for the CSI 300.
You’re also reminded that, as the South China Morning Post wrote late last month, “investors [are prone to] offloading small-cap stocks after they largely led the stock market bubble of 2015” in favor of stocks that are subject to MSCI inclusion.
Again: file this away for posterity, because we might be referring to it later on down the road.