China’s small and medium-sized companies are defying a broader slump in local equities and are poised to enter a bull market. The Beijing Stock Exchange 50 Index, which measures early-stage innovative companies listed in the capital, rose 3.1% on Monday, with gains from an October low of over 19%. This measure 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.
Despite a slowdown in the economy, these companies have shown resilience and growth potential. One factor contributing to their success is the wider fluctuation range of up to 30% allowed for constituents in either direction on the Beijing board, compared to as much as 20% for the Shanghai and Shenzhen gauges. In addition, investors’ light positioning in these companies and regulators’ consideration to include eligible securities into the CSI cross-market index system are also driving growth in this area of the market.
Investors are taking notice of this trend, with around a dozen exchange-traded funds tracking the index having assets of about 228.8 million yuan ($31.9 million). The Beijing exchange was launched two years ago with the goal of helping small firms raise funds and diversify China’s financial markets. As such, it represents an opportunity for investors looking for exposure to high-growth potential companies in this rapidly evolving market.