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China's Bargain Hunters Chase Small Caps Just as Giants Stumble

  • Anbang saga sparks new flight to safety in smaller companies
  • Large-cap shares have consistently outperformed this year

China’s stock market was turned on its head this week, as investors sought a new refuge in small caps after the largest firms suffered their worst rout of the year.

The ChiNext Index has climbed 1.2 percent, putting it on course for the best showing versus the SSE 50 Index in 15 months. The detention of Anbang Insurance Group Co.’s chairman and speculation that the so-called national team is cashing in on its large-cap investments sent the SSE 50 plummeting 2.5 percent this week.

China’s small caps have been hit particularly hard in 2017, buckling under persistent concern over the economic impact of the government’s drive to clean up the financial system. The ChiNext Index was down as much as 12 percent for the year just two weeks ago, while a rally in state-backed giants lifted the broader market. Even after this week’s reversal, the SSE 50 is still near its highest level relative to the small-cap gauge in two years.

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