China’s Stock-Market Winners Are Loss-Makers, Defaulters and Risky Firms

(Bloomberg) -- If investor tolerance for risk wasn’t obvious enough in the surge underway in China’s stock market, just take a look at some of February’s best performers.

Loss-makers turn big winners

Of the 30 top-performing Chinese stocks last month, 12 companies said they expect to report a loss for 2018. Take CPT Technology Group Co., which said in late January it will likely post a loss of as much as 5.5 billion yuan. In February, its share price more than doubled, surging by a record. Xi’an Tian He Defense Technology Co., which also warned in January that it expects a loss of 155 million yuan in 2018, saw a more than 100 percent gain in its stock price the following month. By comparison, the top 3 companies with the highest net income forecasts gained by 10-15 percent last month.

Defaulters outpace wider gains

Listed companies that defaulted on bonds last year surged in February, with 12 such firms posting an average climb of 34 percent, outpacing the Shanghai Composite Index’s 14 percent gain. Chuying Agro-Pastora Group Co., which defaulted on a one billion yuan bond in December after a smaller default in November, saw its shares rise 64 percent in February, its biggest monthly increase since it listed in 2010.

Risky stocks jump

Companies considered high-risk according to a Bloomberg model of default probability also surged last month. Almost 200 such firms saw their stock prices jump by an average 30 percent. Eastern Gold Jade Co. rose 60 percent in February; Anhui Shengyun Environment Protection Group Co. rose 48 percent, while Hunan China Sun Pharmaceutical Machinery Company Ltd. added 45 percent.

NOTE: Bloomberg’s quantitative, independent default-risk model calculates company risks based on stock prices, debt profile and cash flows etc. The model doesn’t direct take into account government support or policy changes.

To contact Bloomberg News staff for this story: Amy Li in Shanghai at yli677@bloomberg.net;Jing Zhao in Beijing at jzhao231@bloomberg.net;Shuqin Ding in Shanghai at sding28@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, David Watkins, Magdalene Fung

©2019 Bloomberg L.P.

With assistance from Bloomberg