China’s big-caps diverge most against peers as traders ignore top analysts’ forecast

Traders are taking China’s big-cap shares to the most extreme divergence against the rest of the market on record.

The enthusiasm for the biggest players in industries ranging from home appliances and brewery to insurance has extended into 2018, as companies including Gree Electric Appliance and Wuliangye Yibin maintained their outperformance by topping the ranks of gainers. As a result, the CSI 300 Index and the SSE 50 Index, the two major gauges of mainland-listed larger companies, now trade at the highest levels relative to the benchmark Shanghai Composite Index, according to data compiled by Bloomberg.

So far, investors are not buying the prediction made by top-ranked strategists from Haitong Securities and Bocom International Holdings, who had forecasted at the end of last year that the big-caps’ outperformance would be less conspicuous in 2018, with more mid- and small-cap shares joining the rally.

Hengsheng Asset Management says big companies are still cheaper than their global peers and they would enjoy more premiums amid constant institutional fund inflows, while Shanshan Finance predicts the rally would continue until the first half of the year as smaller firms are still on course to squeeze out the bubble.

“The valuation hasn’t elevated,” said Dai Ming, a fund manager at Hengsheng Asset in Shanghai. “Foreign investors and insurance firms are the two major sources of new fund inflows and they would focus their buying on companies that are the industry leaders and have pretty solid earnings outlook.”

Dai said his major holdings were insurance, banking and consumer stocks, without being specific.