China Stock Market: Small Cap Stocks in Free Fall

The Chinese stock market experienced a nightmarish day on Monday, with the CSI 1000 index plummeting by nearly 8%. This index includes small and medium-sized enterprises listed in China. Amid investor panic, about 30% of stocks were suspended due to a 10% drop limit imposed by the authorities.

BREAKING: Nearly 30% of all stocks in China have been halted as China's CSI 1000 index slides 8% in a matter of hours.

Chinese stock market indices today:

1. CSI 1000: -8%
2. Star 50: -5%
3. Beijing 50: -4%
4. Shenzhen: -4%
5. Shanghai Composite: -3%

Meanwhile, the CSI 100 and… pic.twitter.com/5s6gddKYNS

— The Kobeissi Letter (@KobeissiLetter) February 5, 2024

Stock Market Crash in China: What Are the Factors?

For the past few days, the Chinese stock market has been struggling to recover. The reasons for this crash are multifaceted:

• fear of monetary tightening by the Chinese central bank;
• the spread of the Omicron variant of Covid-19;
• geopolitical tensions with the United States,
• financial scandals involving companies like Evergrande or Didi.

Chinese Stock Market in Crisis: Sectors Most Affected by the Debacle of Small Caps

The sectors that suffered the most from the fall of the Chinese stock market are those that had benefited from the pandemic. This includes technology, consumer goods, and health care.

The Star 50 index, which includes innovative companies, lost 5%. As for the Beijing 50, Shenzhen, and Shanghai Composite indices, they have retreated by 4% to 3%. These indices reflect the performance of small caps, which represent about 80% of the Chinese stock market.

These companies are also more affected by the increased regulations imposed by Beijing on strategic sectors such as the internet, education, and security.

Reasons for the Resilience of Large Chinese Companies

Large Chinese companies seem to be weathering the storm. The CSI 100 and Hong Kong 50 indices, which represent large capitalizations, even ended the session on the rise: by 0.5% and 0.8% respectively.

These companies benefit from:

• their exposure to international markets,
• their support by the Chinese government,
• their lesser dependence on domestic economic conditions.

Some stock market experts expect volatility to persist in the coming days. Others, however, see in this correction a buying opportunity. Case to follow…