China's retail investors hit as small-cap stocks slump

SHANGHAI, Feb 4 (Reuters) - A slump in Chinese small-cap stocks has left many retail investors nursing losses despite strength in the broader market, as institutional investors flock to blue-chip names.

The CSI1000 index, mainly comprising firms with a market value of less than 20 billion yuan ($3.09 billion), dropped 2.2% on Thursday to a near eight-month low, bringing its losses for the year to more than 7%.

China’s CSI300 blue-chip index, in contrast, is up more than 5% for the year after a 27% rise in 2020.

“This is a ‘stock crash’ bull run,” said Eric, a retail investor in the central province of Henan, who declined to give his last name.

The phrase, which refers to a small group of large companies gaining while many others fall, has been trending on China’s Weibo social media platform in recent days as the gap between haves and have-nots has widened.

China’s top liquor maker and biggest listed company Kweichow Moutai, popular with asset managers, jumped as much as 6.4% to a new record high on Thursday, taking its market value to 2.6 trillion yuan.

The disparity between small and large firms has become even starker following registration-based IPO reforms on Shanghai’s STAR Market and Shenzhen’s ChiNext last year, which have increased equity supply and pressured valuations.

Some retail investors hoping to hitch a ride on the broader bull run have been especially hard-hit after they continued to place bets on small firms.

“My 70% gain in 2020 has dwindled to only 15%,” said Muzi, an investor who has been posting about the small-cap slump on Weibo. She said she has lost 15,000 yuan, or three months’ salary, since November.

Institutional investors have taken a different approach. Hong Yanhua, chairman of Zhejiang Murong Asset Management, said he was no longer interested in small-cap companies, seeing large companies as safer bets.

“Nobody wants shares of small firms now, as it’s really difficult to trade them,” he said.

Rather than looking onshore, Hong said he is seeking bargains in Hong Kong. ($1 = 6.4626 Chinese yuan) (Reporting by Luoyan Liu and Andrew Galbraith Editing by Robert Birsel)