China equity traders abandon ‘bubble stocks’ amid PBOC liquidity signals as reflation bets gain momentum

Consumer and technology stocks, dubbed as ‘stampede trades’ and ‘bubbles’ by analysts, bore the brunt of selling last week after markets reopened

HSBC Jintrust, among top domestic fund managers, says matching fundamentals with valuation is top priority in asset allocation

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Retail investors look at an electronic board showing stock information at a brokerage house in Shanghai. Photo: Reuters

Published: 7:30am, 22 Feb 2021Updated: 6:40pm, 22 Feb 2021

China’s most crowded stock trades are showing signs of unravelling as liquidity tightening by the central bank and expectations about global economic reflation gave investors some cold feet after they returned from a market break.

Liquor distiller Kweichow Moutai, electric-car battery maker Contemporary Amperex Technology and duty-free shop operator China Tourism Group Duty Free have tumbled by at least 9 per cent since the mainland’s stock exchanges reopened after a five-day Lunar New Year holiday.

The trio are among favourite consumer and technology-related stocks that have skyrocketed over the past year as they prospered from the “new normal” in work and spending patterns during the Covid-19 pandemic. They now appear to be most susceptible to policy tweaks.

The People’s Bank of China mopped up a net 260 billion yuan (US$40.2 billion) of liquidity from the financial system on Thursday, stoking concerns that policymakers may have started dialling back their accommodative stance after getting the pandemic under control. The central bank has also lowered lending quota in a move seen as reining in asset speculation.

The headquarters of the People's Bank of China in Beijing. Photo: Reuters

“We need to pay close attention to the policies on liquidity and institutional inflows,” said Huang Hongwei, an analyst at Chasing Securities. “The stampede bets have pushed stocks to lofty valuations and priced in earnings in the following three or four years. A rise in interest rates could lead to a significant drop in those valuations.”