China’s technology start-ups make a spectacular comeback from the dog house of the 2015 stock market rout
- The ChiNext index has risen 26 per cent in 2020, making it the best performer among all the gauges tracking Chinese onshore and offshore equities
- Improvement in earnings growth, policy support and adequate liquidity have fuelled the run-up
Traders have been returning to the ChiNext gauge of smaller Chinese companies almost five years after it crashed, sparking a marketwide meltdown that wiped out US$5 trillion in capitalisation.
The prospect of a rebound in earnings growth, the easing of restrictions on refinancing and loosening liquidity have got investors piling into the board that hosts 803 technology start-ups on the Shenzhen Stock Exchange.
The ChiNext index has risen 26 per cent so far this year, making it the best performer among all the gauges of Chinese onshore and offshore stocks.
Even the scourge of the Covid-19 epidemic has not derailed the momentum. The gauge took only two days to recover from panic selling sparked by the virus, and is now trading at a three-year high.
The ChiNext index climbed 1.7 per cent to 2,263.97 on Monday, still 43 per cent shy of the record high set before the 2015 crash.
The partial comeback has been a long and turbulent one for the ChiNext board. It was the flashpoint of the rout on Chinese stocks in 2015, losing about 70 per cent of its value in the aftermath of a boom-to-bust cycle that had led its price-to-earnings ratio to exceed 100 times. The board again bore the brunt of selling in 2018, when a deluge of companies posted profits that were way off analysts’ estimates after acquired units failed to deliver on earnings promises.