China’s small-caps are staging a comeback. While traders offloaded holdings of the larger blue chips on concerns that their earnings growth would fail to support their elevated valuations, they piled into smaller companies, helping to lift these stocks from a three-year low. The ChiNext index of growth companies jumped 6.2 per cent in Shenzhen last week, outperforming the benchmark Shanghai Composite Index by the most in almost two years. It has extended the gain by 0.8 per cent so far this week. Institutional investors, however, are split over the sustainability of the rally. HSBC Jintrust Fund Management says the market is now reassessing growth companies as the worst scenario for them has already been priced in their stock prices, whereas HFT Investment Management argues it is too early to say this is a reversal of the downward trend, given the relatively tight liquidity situation. The ChiNext gauge remains 55 per cent down from its record high set in 2015.
