China’s small-cap stocks flash bearish signs as pricey valuations keep investors at bay without stronger policy easing

The ChiNext gauge has lost 7.4 per cent this month, the most among major onshore stock indices and the worst start to a year since 2016

Members trade at 56.8 times earnings, compared with 17.3 times for established industry leaders in the CSI 300 Index

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The ChiNext has lost 7.4 per cent this month, the most among major onshore stock benchmarks. Photo: EPA-EFE

Published: 3:53pm, 19 Jan 2022

Investors are falling out of love with China’s start-up companies listed in Shenzhen as the market made its worst start to a year since 2016. Aggressive valuations against established industry leaders and a bearish technical sign are keeping buyers at bay.

Even policy easing measures over the past month are not doing much to whet the appetite for now, while a surge in US government bond yields to a 21-month high has added to the weak sentiment, according to Chen Li, a Beijing-based analyst at Chuacai Securities.

“Rising Treasury yields have put constraints on tech and renewable energy stocks and prompted funds to flow back to stocks with low valuations and high profits,” Chen added.

The ChiNext index, which tracks the top 100 companies including battery maker and Tesla supplier Contemporary Amperex Technology or CATL, tumbled 2.2 per cent on Wednesday. The gauge has lost 7.4 per cent this month, the most among major onshore stock benchmarks.

Tech stocks sold off in Asia-Pacific markets this week as the Federal Reserve signalled a potentially faster increase in borrowing costs. The Hang Seng Index erased gains in Hong Kong, falling in tandem with steep declines in Australian and Japanese equities. US stocks slumped by 1 to 2.8 per cent overnight.