China’s Beijing Stock Exchange slumps by record 5.2% after bourse seeks to rein in rally deemed excessive

An index of small-cap companies trading on China’s smallest stock exchange tumbled by a record amount, after the bourse operator took measures to cool a rally that has sent the gauge soaring by more than 50 per cent over the past month.

The Beijing Stock Exchange (BSE) 50 Index slumped 5.2 per cent to 1,045 in morning trading on Tuesday, halting a rally that had driven the index 56 per cent higher since October 23 up to Monday. The gauge was heading for its steepest one-day decline since its inception in November 2022.

From November 20 to 24, the exchange issued 93 verbal warnings, supervision notices and written warnings for abnormal trading, including pump-and-dump and continuous bidding for stocks by the daily limit, the Beijing bourse said in a statement on its website on Monday.

The exchange had been closely monitoring unusual share price movements in Tianjin Kaihua Insulation Material, Hebei Raisesun Information Technology and Hebei Huayang Automobile Gearshift System, it said.

The buying spree on the Beijing exchange was triggered after policymakers in recent months launched a raft of measures to bolster trading on the mainland’s newest bourse, including introduction of market makers to boost liquidity, revision of rules allowing companies to transfer to bigger exchanges and easing of new account openings.

“The rally is largely driven by speculative traders seeking thematic investments, given the companies on the Beijing exchange are all small-caps that are easier to manipulate,” said Wang Zheng, chief investment officer at Jingxi Investment Management in Shanghai. “The economy isn’t in a good shape and there are not many opportunities on the main boards. That is why speculators are focused on the Beijing exchange, taking advantage of the policy tailwinds.”

Currently, 232 companies trade on the exchange, which have a combined market capitalisation of 417.2 billion yuan (US$58.3 billion), according to the bourse’s website. That is a tiny fraction of the 47 trillion yuan valuation of companies trading on the Shanghai exchange and 31.8 trillion yuan in Shenzhen.

The Beijing bourse was set up in September 2021. Most of its constituents are small companies that were transferred from the over-the-counter market.

The Beijing exchange said in its statement that it would urge member brokerages to strengthen management of client trading and disclose trading risks to investors in a timely manner.

The bourse added that it would continue to increase surveillance and maintain order in market trading.