Chinese investors are finally dumping shares in loss-making companies after years of speculation on them in a sign that punters are at last taking seriously tighter regulations and new delisting rules that make holding their stock a huge risk. The struggling firms have often been market outperformers as they were almost never delisted, providing an implicit floor on downside risk that speculators have exploited to their advantage. But Beijing’s broad efforts to reform its capital markets, and in particular recent rules aimed at fostering a robust stock market and efficient allocation of capital, signal an end to such policy aberrations. “Tighter rules and stricter implementation are pushing investors away from ‘junk’ shares’,” said Xiao Shijun, an analyst at Guodu Securities. “It’s an attitude reversal; investors are finally turning to blue chips, given their surprisingly high returns of late.” An unprecedented 38 firms published obligatory formal delisting warning statements in December, many citing fraud investigations as the cause, after the China Securities Regulatory Commission issued tougher delisting rules in October. Tighter rules and stricter implementation are pushing investors away from ‘junk’ shares’ Xiao Shijun, Guodu Securities So long as CSRC enforces the rules, most of these 38 firms will be kicked out of the Shanghai or Shenzhen stock exchanges within a year, though in the past the regulator has failed to walk the talk. This time around, however, Chinese investors are bailing out of at-risk shares as the regulators show more zeal in cracking the whip. Two thirds of the mentioned firms have suffered sharp stock price falls since December. Zhuhai Boyuan Investment, for example, has lost 36 per cent to 7.52 yuan, while Weifang Beida Jadebird Huaguang Technology has dived 32 per cent to 5.27 yuan before both companies suspended trading on December 22. Only 78 firms have been delisted since the mainland established its modern stock market in 1990 and no stock was delisted from 2008 until mid-2014. China Erzhong Group Deyang Heavy Industries, under a trading halt since last year, looks likely to be delisted after posting a fourth year of losses of about 7.8 billion yuan Under current rules, the CSRC will halt trading in shares of companies with three consecutive years of losses, then eject them one year later if there is no turnaround in profitability.