Micro stocks, or stocks of small companies with market values typically less than 3 billion yuan, have been shining in China’s flagging share market in recent months.
While the benchmark CSI 300 index has lost 8% so far this year, the Wind Micro Market Cap Index has gained 37%. This outperformance is due to a number of factors, including:
Speculation:
Micro stocks are often more volatile than large-cap stocks, making them more attractive to speculators.
Sector rotation:
Investors are rotating out of sectors that have been underperforming, such as real estate and technology, and into sectors that are expected to benefit from the government’s stimulus measures, such as infrastructure and manufacturing. Micro stocks are often concentrated in these sectors.
Government support:
The Chinese government has been supportive of micro stocks, providing tax breaks and other incentives to help them grow.
The outperformance of micro stocks is a sign that the Chinese government’s efforts to stimulate the economy are having some success.
It is also a sign that investors are becoming more confident in the future of the Chinese economy.
However, investors should be aware of the risks associated with investing in micro stocks. Micro stocks are more volatile than large-cap stocks, and they are more likely to be delisted. Investors should also do their research before investing in any stock, regardless of size.
Here are some tips for investing in micro stocks:
Do your research:
Micro stocks are often less well-known than large-cap stocks, so it is important to do your research before investing. This includes reading the company’s financial reports, understanding its business model, and assessing its management team.
Diversify your portfolio:
Don’t put all your eggs in one basket. Diversify your portfolio by investing in a variety of different micro stocks, as well as large-cap stocks.
Be prepared for volatility:
Micro stocks are more volatile than large-cap stocks, so be prepared for ups and downs. Don’t panic sell if the price of a micro stock falls.
Have a long-term investment horizon:
Micro stocks are often more volatile in the short term, but they can offer good returns over the long term. Be patient and don’t expect to get rich quick.
Overall, micro stocks offer the potential for high returns, but they also come with high risks. Investors should be aware of these risks before investing in micro stocks.