Tuesday, 20 October 2015

China's small-cap stocks rebound

Despite the pummelling that Chinese stocks have received in general, at least some parts of the stock market are still showing signs of froth. From Bloomberg:

Investors traded 5 billion shares on the ChiNext Composite Index on Oct. 16, more than at any point during this year’s rally. The Shenzhen gauge, dominated by small technology companies, is up 34 percent from its Sept. 15 low. Traders have borrowed extra debt to buy the city’s stocks for seven days straight...

The ChiNext Composite trades at 90 times profit, more than five times the valuation multiple for the Shanghai Composite Index, data compiled by Bloomberg show. The large-cap index has rebounded 16 percent since its August low.

For Rabobank Group’s Michael Every, the divergence is a reminder of the power of China’s 90 million individual investors, who favor momentum over fundamentals.

“It’s greed and short-term memory loss," said Every... “Equities are still over-priced everywhere.”

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