While US and Chinese trade talks are a constant in the news, you don’t really hear much about Chinese equities these days. While the Shanghai Composite Index got off to a blistering start in 2019, it gave up a good share of those gains in the Spring and has traded in a very tight range ever since even as global stocks break out. For a typically volatile index like the Shanghai Composite, the 9.9% range it has traded in over the last six months is relatively narrow. Since 1990, there have only been three other periods where the index’s six-month trading range was in the single-digits.
While the Shanghai Composite index has been lacking in vitality, smaller-cap Chinese stocks have been showing signs of life. The chart below shows the performance of the Chinese ChiNext Index, which is a segment of the Shenzhen stock exchange that is composed of smaller cap Chinese companies. Companies in this index face less stringent listing requirements and are often considered to be earlier in their corporate life-cycle than more established companies. In simple terms, the ChiNext index is often referred to as the Nasdaq of China.
Like the Shanghai Composite Index, the ChiNext Index had a strong start to 2019 but quickly gave up most of its early gains. Unlike the Shanghai Composite Index, though, the ChiNext index has recouped much of its losses from the Spring and is now just 4.5% below its 2019 high compared to the Shanghai Composite Index which is still down just under 10% from its YTD high. If the ChiNext can take out both its recent high from August and the highs from earlier in the year, Chinese equities, in general, will likely follow suit. Sign up for Bespoke’s “2020” special and get our upcoming Bespoke Report 2020 Market Outlook and Investor Toolkit.