Despite a broader slump in local equities, shares of China’s small and medium-sized companies are defying the trend and poised to enter a bull market. The Beijing Stock Exchange 50 Index, which tracks early-stage innovative companies listed in the capital, rose 3.1% on Monday, with gains from an October low of over 19%. This index has outperformed its larger, tech-heavy peer by 12 percentage points and the benchmark CSI 300 Index by 16 percentage points, making it a bright spot in China this quarter.
The strong rebound on the Beijing board this month can be attributed to several factors. Firstly, a wider fluctuation range of 30% allowed for its constituents in either direction compared to a span of as much as 20% for the Shanghai and Shenzhen gauges. Additionally, investors’ light positioning in these companies and regulators’ consideration to include eligible securities into the CSI cross-market index system are serving as catalysts for growth in this area of the market.
The largest of around a dozen exchange-traded funds tracking the index have assets of about 228.8 million yuan ($31.9 million), indicating that investors are showing interest in these companies. The Beijing exchange was launched two years ago with the aim of helping small firms raise funds and making China’s financial markets more diverse. With its robust performance this quarter, it is clear that small and medium-sized companies are playing an increasingly important role in driving economic growth in China.