So Much for the Rally: ChiNext Hits New 52-Week Low
Two weeks ago there was a glimmer of hope in the markets after the PBoC and regulators issued a joint statement that sounded dovish. Although they pledged to increase coordination, financial deleveraging continues. The hoped for bounce in the ChiNext is gone as the index hits new post-2015 lows. More losses could come given valuations and the analog of the Nasdaq 2000 bubble.
The ChiNext index is valued at about 63 times the median PE ratio, well above the 40 threshold considered as the safety margin, while the Shanghai Composite is close to the multiple of 30 times which is perceived as the dividing line between safe and risky, Xun said in a research note.
The ChiNext board has been falling out of favour among investors after the stocks led a crash in mainland equities in 2015 following the regulatory clampdown on margin trading funded by illegal non-brokerage institutions. Trading has been lacklustre since then, with daily turnover down almost 70 per cent from the all-time highs in 2015.
The recent rally appears to be driven more by technical factors than fundamentals, as it followed the index’s decline to a level lower than the nadir in 2015, prompting some buyers to believe the market was over-sold and would see a quick rebound.