Shenzhen exchange loses out to Shanghai bourse as small-cap delisting risks unnerve investors

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The trend underscores the delisting risk faced by small firms and investors’ penchant for big industry leaders that can better withstand economic headwinds

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The Shenzhen Composite Index has dropped almost 8 per cent since the start of the year, versus a 1.6 per cent gain in the Shanghai Composite Index, which is dominated by more established companies in the traditional industries. Photo: EPA-EFE

Zhang Shidongin Shanghai

Published: 4:31pm, 18 Jun 2024Updated: 4:43pm, 18 Jun 2024

Chinese companies trading in Shenzhen, the country’s technology hub, have been underperforming those listed in Shanghai this year, a trend that underscores the delisting risk faced by smaller companies and investors’ penchant for big industry leaders amid a challenging macro environment.

The Shenzhen Composite Index, which is largely made up of small-capitalisation stocks including tech start-ups on the ChiNext board, has dropped more than 7 per cent since the start of the year. That compares with a 1.9 per cent gain in the Shanghai Composite Index, which is dominated by more established companies in the traditional industries.

The divergence in performance comes as the stock market regulator, under the leadership of new chief Wu Qing, has encouraged more dividend payouts from listed companies and pledged to weed out companies that fail to meet strict new listing criteria as part of measures to revive confidence among investors. This is making investors jittery about buying small-cap stocks.

Meanwhile, China’s patchy economic growth has led investors to increase their bets on big companies on expectations that they can better withstand the economic headwinds from a slumping property market and sluggish consumer spending.

“There are increasing worries about small-capitalisation companies after more metrics have been added to the delisting criteria,” said Chen Kaichang, an analyst at Guosen Securities in Shanghai. “The trend of piling into dividend assets has taken hold and the trade on big and value stocks is expected to continue in the medium term.”

A statement by the China Securitie

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