(MENAFN- The Peninsula) Bloomberg
Hong Kong: China's small-caps share gauge, cowed by the nation's battle against speculators, is on the verge of becoming cheaper than the Nasdaq Composite Index for the first time on record.
The ChiNext Price Index's valuation based on reported earnings is now at 36.2, compared with 34.3 for the Nasdaq, leaving the narrowest gap since the Chinese board started in 2010.
The ChiNext, which is made up of mostly technology companies, has plummeted 25 percent in the past year, while the US gauge has climbed 26 percent.
Once a darling of local investors, the ChiNext has fallen out of favour in the past year as China intensified efforts to reduce leverage in the financial system.
Concerns were heightened this month, with the Xinhua News Agency citing President Xi Jinping as saying at a five-yearly policy conference that authorities will actively prevent financial risks.
While valuations on the small-cap gauge have crumbled from the giddy peaks of the 2015 stock market bubble, they're still elevated relative to the rest of China's stock market, or most global indexes.
'Investors have lost risk appetite in the face of tighter liquidity conditions and increased supply of new stocks, said Qiu Zhicheng, Hong Kong-based strategist at ICBC International Research Ltd. Earnings have played a part as well.
Profit warnings by companies including Enjoyor Co to Hithink Royal Flush Information Network Co, and reports regulators are probing the finances of index heavyweight Leshi Internet Information & Technology Corp, have added to investor bearishness.
After raising $21bn from share sales in the three years through 2016, the 100 ChiNext members posted a combined profit of just $17bn and negative combined free cash flow for the period, according to data compiled by Bloomberg.
In comparison, the 107 components of the Nasdaq 100 Stock Index reported profit of $905bn and free cash flow of $996bn after selling shares for $24bn in three years.
MENAFN2307201700630000ID1095650829
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.