China’s Most Speculative Stocks Sink From Almost Four-Year High

(Bloomberg) -- China’s tech-heavy ChiNext Index saw losses accelerate in afternoon trade in another volatile session for mainland stocks.

The index declined as much as 5%, after closing Tuesday at the highest level since July 2016. The Shanghai Composite Index dropped 0.8% to close below the key 3,000 point level, joining a global rout. Volume was about 70% higher than the 30-day average for stocks in Shanghai and Shenzhen.

The declines again underscore the vulnerability of an equity rally that’s been built on little more than liquidity. Chinese indexes had surged partly on hopes that Beijing’s monetary easing and fiscal support measures would help companies weather economic headwinds.

“There is quite a bit of disagreement over what’s next for ChiNext at this point,” said Huang Huiming, partner at Nanjing Jing Heng Investment Management Co. “Though short term trends are guided by liquidity, its best to stay away from these shares as their valuations look quite inflated.”

Chinese stocks took just weeks to recover from a record sell-off earlier this month triggered by the virus outbreak, which has infected tens of thousands in the country. The outbreak will almost certainly have a severe impact on economic growth and corporate earnings -- manufacturing data for February due Saturday is set to show the worst contraction since the global financial crisis in 2008.

To contact Bloomberg News staff for this story: April Ma in Beijing at ama112@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Sofia Horta e Costa, David Watkins

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With assistance from Bloomberg