The decline in Chinese small-cap stocks continued into Tuesday following the government's commitment to enforce stricter market regulations, raising concerns about potential delistings for financially unstable companies.
The CSI 2000 Index, which mainly consists of small-cap stocks, experienced a 7.2% drop, bringing this week's total loss to 11%. In contrast, the CSI 300 Index, known for its blue-chip firms, saw a slight decline of 1.1% after a previous gain of over 2% on Monday.
Investors are adjusting their strategies in response to the State Council's announcement last Friday, which included plans to enhance listing standards and called for improvements in corporate governance and increased dividend distributions. This shift is prompting a move towards larger companies amidst an uncertain economic and earnings growth landscape, according to analysts.
Analysts like Marvin Chen from Bloomberg Intelligence believe that the new capital market reform measures focusing on profitability, dividend payout, and shareholder returns will likely lead to large-cap stocks outperforming smaller ones. They also anticipate that small caps with poor profitability and liquidity might face higher risks of being delisted under the new regulations.
These recent guidelines are being compared to past measures aimed at capital market development in 2004 and 2014, which initiated a series of market reforms.
Investor sentiment was already shaky on Tuesday as recent data indicated a slowdown in retail sales and industrial production in March, even though economic growth in the first quarter surpassed expectations.
Following these developments, the CSI 2000 Index has seen a 23% decrease year-to-date, whereas the CSI 300 Index has gained more than 2%.
