Chinese investors spark frenzy for ‘Sino-Russian trade’ stocks

Amateur investors in China are driving a rally in so-called ‘Sino-Russian trade concept stocks’ as they bet Beijing will boost trade with Russia to soften the blow from sanctions, pushing little-known logistics companies to bids. valuations typically reserved for global technology groups.

More than a dozen Chinese stocks in trade-related industries have posted meteoric gains since Vladimir Putin launched his invasion of Ukraine, with some rising by as much as 10% for six straight days.

“The premise is that all of these would be massive winners due to increased trading,” said the head of Asian equity strategy at a European bank, describing the rally as a “frenzy” fueled by speculation in stocks. retail investors.

Among the best performers is Jinzhou Port, a port operator in the northeast Liaoning Province, whose shares have risen 80% since the start of the invasion, against a 3.5% decline. % for China’s benchmark CSI 300 index.

The port of Jinzhou issued the latest in a series of investor warnings to the Shanghai Stock Exchange on Wednesday, reiterating that there had been no significant developments in its business and reminding investors that its profits had fallen by nearly 10% from a year ago in the third quarter.

It also warned that its price-to-earnings ratio, a common measure of valuation, was “much higher than average” for its listed peers.

Nevertheless, shares of the company again posted the maximum allowable gain of 10% on Thursday and Friday. This pushed its PE ratio to around 59, overtaking Netflix (34) and closing in on Amazon (63).

The gains from this handful of stocks come despite Beijing’s reluctance to offer financial and economic relief to Moscow, after Western-imposed sanctions dealt a heavy blow to Russia’s economy and cut off many of its most major financial institutions in the rest of the world. China has also suggested it is ready to play a role in seeking a ceasefire.

But in the months leading up to the invasion, the national media was steeped in pro-Russian rhetoric, emphasizing what Chinese officials called a “limitless” partnership.

The two countries pledged to boost bilateral trade to $250 billion a year as Putin traveled to Beijing for the Winter Olympics in February. The Russian president also unveiled new oil and gas deals with China worth nearly $120 billion.

Traders have also latched onto announcements suggesting official support for Moscow, such as a recent statement by Chinese customs ending restrictions on Russian wheat imports. Financial news sites pointed to the move as helping to spur demand for issuers now commonly referred to as “Chinese-Russian trading concept stocks”.

Analysts said a substantial increase in two-way trade was unlikely to seriously boost returns for most of the targeted companies, including the port of Jinzhou.

“It’s mostly an inland port,” said Darin Friedrichs, co-founder of agricultural research group Sitonia Consulting. “The fact that it is geographically close to Russia is irrelevant.”

The Asian equity strategist noted that even if trade with Russia doubled, it would only represent around 4% of China’s annual total. Even then, he added, “many of these companies are solely engaged in inland transportation.”

“Such frantic exchanges without any strong fundamental support always end in pain,” he said.

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