China’s ChiNext stocks are cheap, but not enough to buy
Although the ChiNext board is heading for a second year of losses and stocks prices have fallen below 2015 market crash levels, investors say they are still overvalued
China’s small-cap stocks are now cheaper than they were in the 2015 market crash.
Shenzhen’s ChiNext index of small firms dropped 1 per cent to an intraday low of 1,770.59 on Tuesday morning trading.
The level was 8.6 points below the nadir seen on September 2, 2015 amid the mayhem that erased US$5 trillion in market value. Even after more than halving from its peak, ChiNext stocks are still far from being bargains now because of stretched valuations and slowing earnings growth, according to investors including Xufunds Investment Management.
“There’s a lot of doubt about the true growth of ChiNext companies and we haven’t seen any company on it turning into a true growth one,’’ said Wang Chen, a partner with the Shanghai-based fund management firm. “The valuations don’t match the growth rate. The market is still in the long process of finding its bottom.”
The ChiNext board is heading for a second year of annual losses. Its gauge rebounded in the afternoon session to close 0.8 per cent higher to 1,802.49 on Tuesday, trimming its decline to 8.1 per cent this year. It is lagging the Shanghai Composite Index of mainly larger companies, which has so far slipped 0.7 per cent in 2017.
There’s a lot of doubt about the true growth of ChiNext companies and we haven’t seen any company on it turning into a true growth one
Yet, the ChiNext companies are still more than three times as expensive as those on the 1,268-member Shanghai Composite. The small-cap gauge is valued at 51 times earnings, compared with the multiple of 16 times for the Shanghai index.
