A tiny glass company you’ve never heard of is one of China’s best-performing stocks this month.
Spiking 34 percent, so far this month state-owned Luoyang Glass is the second-best performer in the Shanghai Composite. For the last three days, the stock has also hit the 10 percent daily trading limit. At a measly 0.03 percent of the Shanghai Composite’s total market cap of more than $4 trillion, Luoyang is worth $1.2 billion, and hence the Henan province-based company is rarely more than a blip for investors.
And even the company says it doesn’t know why Luoyang’s stock is jumping and this is the only thing.
Telling investors to proceed with caution and to consider fundamentals, the firm issued a statement late Monday. In just a few days before it’s due to report first-half results, the company even warned of weak profitability.
Alternating annually between profits and losses over the last few years has been the journey for Luoyang, which makes products like sheet and float glass. And according to Reuters data, because only one has issued a rating for the company, it’s not even a company that many analysts follow.
Yet a common pattern in China seems to best fit the recent moves.
“Retail investors still prefer smaller companies because the momentum for those smaller caps tends to be stronger,” said Tony Li, an analyst with China Galaxy International Securities.
Li added that especially as investors look for creative investment themes in China, better profitability and returns can be the result even though smaller companies with lower market values might mean higher volatility.
The assumption that China’s volatile markets are still ironing out some kinks is reiterated by the relatively tiny glass company’s unexplained move. Since a massive crash in 2015 wiped out trillions in market value, regulators have been working over time. And as the government tried to show it was serious about protecting investors and fighting market manipulation, some people were even arrested in the aftermath.
More recently, looking into any corporate actions that may pose financial risks, the Shanghai Stock Exchange has taken on more oversight responsibilities.
A mini-crash dubbed “Black Monday” was posted by Chinese stocks last month.
Experts say all signs are pointing to a market that is starting to mature — albeit a bit slowly.
“The A-share market has gotten a lot more rational, and there are more growth-oriented equity proxies than in the Hong Kong market,” said Nomura’s head of China equity research and chief strategist Wendy Liu, referring to another name for stocks traded on the mainland. “I sense that sentiment toward investing in China has continued to warm up.”
Liu said that growing less wary of China exposure now are foreign institutional investors, for instance.
And possessing a louder voice than ever are retail investors in China.
“Retail investors demanded that the regulator avert a ‘stock market crisis 4.0’ by reducing the number of IPO approvals,” Christopher Beddor of Eurasia Group wrote in a recent note.
China’s markets are set to become far less bumpy in the long run, experts say. But for now, even if they’re influenced by tangential information, some stocks are still going to experience dramatic swings.
(Adapted from CNBC)