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Chinese trash stocks post a rally as bluechips disappoint

Chinese stocks remained under pressure with big-cap blue-chips underperforming while trash stocks posting a rally.

Shanghai Composite Index slid 1.7 per cent to 2704 on Wednesday, testing 2700 mark. Shenzhen Component Index slipped 1.8 per cent to 8402 and Chinext lost 1.7 per cent to 1430.

Large-cap blue-chips companies, which Chinese investors like to call white-horse stocks, led the losses, with the SSE 50 index which tracks the 50 biggest stocks listed on the Shanghai Stock Exchange slipped 2.4 per cent.

In contrast, trash stocks posted a strong rally, with most of the 20 stocks that limited up on Wednesday were stocks that have been plunging due to deteriorating fundamentals and management problems which are called the “five black categories” by Chinese investors.

Zhonghong Holding Co., Ltd, limited up on Wednesday, making it over 23 per cent higher so far this week. The stock faces the risk of mandatory delisting, as its closing prices have been under the par value for fifteen consecutive trading days. According to rules of the Shenzhen Stock Exchange, a company could be delisted if its share stay under the par value for 20 consecutive days.

Shares of Leshi Internet Information and Technology, the listed unit of the embattled Chinese conglomerate LeEco, limited up on Wednesday, more than double the price on 21st August, even though it is at risk of being forced to delist if it continues to log negative net assets in the second half of the year.

Some analysts say, as worst-than-expected earnings and weakening economic fundamentals hit big-caps blue-chips and unlikely to posted any decent rebound in the short term, funds flowing out of blue-chips start to look for short-term profit opportunity in oversold trash stocks.

 

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