SHANGHAI — Share prices on the Beijing Stock Exchange saw a sharp run-up last month, even as the Shanghai and Shenzhen markets continued to languish, amid anticipation of an influx of institutional money into the fledgling bourse.
The benchmark BSE 50 Index surged 27.5% in November, with a record 11.4% gain on Monday alone, quickly picking up steam after a slow start since the exchange’s establishment in November 2021. It outpaced the Shanghai Composite Index’s 0.4% gain for the month, and low single-digit dips for the tech-focused Shanghai STAR 50 and Shenzhen’s ChiNext Index.
The rally was sparked by an announcement on Nov. 17 by China Securities Index Co. that stocks on the Beijing bourse that confront the necessary conditions would be eligible for inclusion in its indexes.
The change is expected to drive “quite a large inflow of passive money,” an analyst at Kaiyuan Securities said.
The CSI 1000 and CSI 2000 indexes, which consist mainly of small and midsize names, have 85.7 billion yuan ($12.1 billion) in funds tracking them, according to the analyst. For the Beijing Stock Exchange, where listed stocks have a total market capitalization of less than 370 billion yuan, even a portion of that money would have a substantial impact.
This, combined with the steady upward march in Beijing stock prices becoming a hot topic, led retail investors to pile into the market as well, fueling its rapid rise.
The Beijing Stock Exchange, mainland China’s first new stock exchange in three decades, was established under the auspices of Chinese President Xi Jinping as a way to channel risk-seeking money to innovative small and midsize companies.
Some of its most valuable names are in high-tech fields, such as BTR New Material Group, which develops electrode materials for lithium-ion batteries, and Shanxi Jinbo Bio-Pharmaceutical.
The rally makes it easier for companies on the bourse to raise money, but if valuations rise out of proportion to companies’ fundamentals, the resulting bubble could burst with painful results.
The Beijing Stock Exchange said Monday it had issued 93 warnings or cautions between Nov. 20 and Nov. 24 related to abnormal trading, including unusually large or repeated bids. This touched off a spate of profit-taking that led to three straight days of declines in the BSE 50 through Thursday.
China’s real estate slump has left individuals who had invested heavily in housing without a place to put their money, with much of it now parked in bank deposits. Market watchers are keeping an eye on where this money goes, including the possibility of a spillover of Beijing’s stock mini-bubble into Shanghai or Shenzhen.
