Despite the broader slump in local equities, shares of China’s small and medium-sized companies are defying the trend and are poised to enter a bull market. The Beijing Stock Exchange 50 Index, which tracks early-stage innovative companies listed in the capital, rose 3.1% on Monday, with gains of over 19% from an October low. This measure has outperformed its larger, tech-heavy peer by 12 percentage points and the benchmark CSI 300 Index by 16 percentage points, making it a bright spot in China this quarter.
The strong rebound on the Beijing board this month can be attributed to several factors. One of these is the wider fluctuation range of 30% allowed for its constituents in either direction, compared to a span of as much as 20% for the Shanghai and Shenzhen gauges. This allows for greater flexibility in investment opportunities, which is attracting more investors to this area of the market. In addition, investors’ light positioning in these companies and regulators’ consideration to include eligible securities into the CSI cross-market index system are also serving as catalysts for growth in this sector.
The largest of around a dozen exchange-traded funds tracking the index have assets of about 228.8 million yuan ($31.9 million), indicating that investors are showing interest in these companies. The Beijing exchange was launched two years ago with the aim of helping small firms raise funds and diversify China’s financial markets. With its successful performance so far, it looks set to continue playing an important role in this area of the Chinese economy going forward