Rebound in China’s ChiNext tech stocks won’t last, says Fortune SG

China’s ChiNext board for start-up firms is in the spotlight after its benchmark index rallied the most in a year last Thursday and a state-backed fund that bought stocks in an attempt to shore up equities during the 2015 market crash purchased major stakes in three ChiNext companies for the first time.

Still, it isn’t enough to convince Fortune SG Fund Management and some of the nation’s biggest brokerages that the board comprising 663 start-up firms is about to pull out of a two-year decline.

While Guotai Junan Securities and Bocom International say slowing earnings growth, relatively high valuations against large-cap stocks and the prospect of faster initial public offerings will deter further buying, Haitong Securities predicts a two-month rebound on the ChiNext stocks before any decline resumes.

“It is a weak rebound and I don’t think ChiNext can stop its declining trend,” said Alexandre Werno, Shanghai-based executive vice general manager at Fortune SG, which manages US$18 billion in assets. “It’s cheap for some ChiNext stocks now. But for the general sector, it’s still too expensive.”

The ChiNext gauge caught traders off guard last Thursday with a 3.6 per cent jump, leaving investors scrambling to find reasons for the surprise advance.