Blue Chips Vs. Small Caps: Same Market, Different Fate

It has been two years since China’s stock-market meltdown, and the Shanghai Composite Index has rebounded some 20% from its post-crash low.

Some market watchers and investors believe the stock market has already recovered from the 2015 meltdown. But has it?

In June 2015, investors began offloading shares en masse. The market fell further in early 2016 when the government introduced a “circuit breaker” mechanism aimed at limiting trading ranges for stocks — a policy that was repealed almost immediately.

Two years later, the benchmark index is still almost 40% below its level prior to the panic selloff.

The full picture, indeed, is as mixed as the chart looks.

On the one hand, blue chips and consumer shares have continued with their ascent. Kweichou Moutai Co. and Gree Electric Appliances Inc. hit new highs in recent sessions. Financial shares such as China Merchants Bank Co. Ltd. and Ping An Insurance Group Co. remain the darlings among institutional investors. Property shares have also surged.

However, startups and small and midsize caps have fallen out of investors’ favor. The ChiNext Board has lost more than 50% since the 2015 selloff. Shares in the electronics, software, agricultural, forestry, entertainment and media industries have all declined across the board.

In volatile times, blue chips are always a safe haven for investors. As the regulator slows IPO approval and cracks down on speculative trading, market watchers believe market conditions will be even more challenging. Funds will probably flock to blue chips for safety, leaving small caps even more behind, they say.