SHANGHAI, April 20 (Reuters) - China's stock investors are
chasing up the country's version of the "Nifty 50" index as
their love affair with trendy small caps fades amid a regulatory
crackdown on speculation and concerns that the economy may lose
momentum later in the year.
The shift in investor preference has also been fueled by a
desire for more stable returns, and a burst in supply of listed
start-ups favoured by smaller punters seeking quick gains.
The term "Nifty 50" originally referred to a group of 50
U.S. stocks favored by institutional investors in the 1960s and
1970s, including stalwarts like General Electric, Coca-Cola, and
IBM, once known as "one-decision" stocks investors could buy and
Now Chinese investors are piling into their approximate
counterparts such as home appliance maker Gree Electric
and spirit maker Kweichow Moutai.
Despite recent market weakness, Gree has gained some 38
percent this year and hit record highs this week, while Kweichow
Moutai became the world's biggest liquor maker by market
capitalisation, dethroning British distiller Diageo Plc.
Big cap stocks have always had a stable and loyal following
among institutional investors in China, but have lacked the
magnetism of small caps in a country where the retail investing
culture is imbued with a high appetite for risk.
"The upward trend for blue-chips like Moutai is not yet
over," Eastmoney Securities strategist Zhang Jiadai said, citing
Moutai's generous dividend payouts and "modest" valuation, at
roughly 24 times forward earnings.
The brokerage's blue-chip Eastmoney Nifty 50 Index has
gained over 5 percent so far this year, outperforming the market
benchmark Shanghai Composite, which is up roughly 2
Meanwhile, investors are dumping small caps, with the growth
board ChiNext down nearly 6 percent.
Zhang predicted that bearish trend "will last for a long
time," potentially halving the index's valuations from the
Such divergence underscores a dramatic reversal from Chinese
investors' strong preference for small-caps over blue-chips
since 2009, creating huge valuation gaps.
Even after this year's sharp correction, ChiNext still
trades at an earnings multiple of roughly 50, while the SME
board is around 40.
In contrast, the SSE50 Index, another gauge that
some liken to China's "Nifty 50", trades at price/earnings ratio
Interest in small caps is quickly waning as regulators have
restricted reckless fundraising, blocked "blind" acquisitions
and vowed to "brandish the sword" against speculation.
"There had been a lot of speculative interest in small-caps,
because high valuations allowed them to raise money cheaply to
fund acquisitions and thus maintain rapid growth," said Zhou
Liang, fund manager at Minority Asset Management Co.
"Once they can no longer keep playing this game, they reveal
their true features," Zhou said, adding he would not be
surprised to see the average valuation of ChiNext shares halve
over the next two to three years.
In addition, regulators are loosening the tap on initial
public offerings (IPOs), flooding the market with newly-listed
start-ups and this depressing valuation of small caps in
Fund manager Zhou predicted that blue chips will continue to
rally due to their relatively low valuations and stable returns,
saying it is "a new cycle that has just started".
Hou Bin, a fund manager at Goldstate Capital Fund Management
Co, said he favored modestly-priced banking and home appliance
stocks, because "when liquidity conditions tend to tighten, and
risk appetite is low, stocks with high valuations will be
But Wu Kan, head of equity trading at Shanshan Finance, said
there may be a silver lining in that painful process for
"As the bubble deflates, there will definitely be bargain
opportunities for those real growth stocks with core
(Reporting by Samuel Shen and John Ruwitch; Editing by Kim