June 17, 2017 2:04 pm JST

Chinese retail investors chase 'white horses'

Fundamentals now more important than short-term profits

NORIKO OKEMOTO, NQN staff writer

HONG KONG -- Chinese retail investors are starting to put more emphasis on fundamentals, such as sustainable earnings growth and high dividends, than on short-term profits.

Stocks are often likened to horses by investors in Chinese markets; newly listed stocks are called "new horses," blue-chip stocks are referred to as "white horses," while volatile stocks are "black horses."

In promoting his policy of reform and openness, former Chinese leader Deng Xiaoping famously said: "It doesn't matter whether a cat is black or white as long as it catches mice."

China's retail investors have taken a leaf out of his book -- they do not care if the horse is black or white, as long as it runs fast.

However, a growing number of retail investors now appear to prefer white horses. The SSE 50 Index, comprising of 50 large-cap stocks on the Shanghai Stock Exchange, is a case in point. On June 12, the index posted a year-to-date high of 2,521. That is in stark contrast with the Shanghai Composite Index, which has remained stagnant after hitting its high on April 11.

Speculation is rife that U.S.-based index provider MSCI may include China's yuan-denominated A shares in its Emerging Markets Index at its June 20 review. Investors buying large-cap blue-chip stocks in expectation of being included in the MSCI index have lifted the SSE 50 Index to the high, said Ben Kwong, head of research at KGI Securities.

Kweichow Moutai, a producer of the traditional Chinese spirit baijiu, is a typical white-horse stock. The Shenzhen-listed company announced in April that its net profit jumped 25% from a year earlier in the January-March quarter, sending the company's stock price to a year-to-date high of 477 yuan on June 14.

Shenzhen-listed Gree Electric Appliances, China's largest maker of air conditioners, and home appliance manufacturer Midea Group are also drawing investor attention.

White horses are not necessarily large-cap stocks; many investors shy away from shares in automakers and other companies that tend to face more competition. As a result of Beijing's clampdown on companies with accounting irregularities, investors are becoming more focused on fundamentals, according to Huang Yongxi, head of Toyo Securities' Shanghai office.

Asia300

Gree Electric Appliances, Inc. of Zhuhai

China

Market(Ticker): SHE(000651)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 36,800.6M
Shares: 6,015.73M
Asia300

Midea Group Co. Ltd.

China

Market(Ticker): SHE(000333)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 46,914.4M
Shares: 6,519.64M
Asia300

Kweichow Moutai Co., Ltd.

China

Market(Ticker): SHG(600519)
Sector:
Industry:
Consumer Non-Durables
Beverages: Alcoholic
Market cap(USD): 108,800.89M
Shares: 1,256.19M

Toyo Securities Co., Ltd.

Japan

Market(Ticker): TKS(8614)
Sector:
Industry:
Finance
Investment Banks/Brokers
Market cap(USD): 237.96M
Shares: 87.35M

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