China state giants are only stock winners in divided market

HONG KONG (June 2): In China’s struggling stock market, it’s easy to pick a winner. Back the state.

The SSE 50 Index comprising some of China’s largest companies has surged 6.4% in the past month, climbing to its highest level versus the broader Shanghai Composite Index in four years. Outside of the state giants, the rest of the market looks blighted: more companies on the Shanghai measure were at 52-week lows last week than at any time since 2013.

The outperformance is being driven by government policy: a regulatory campaign to curb leverage is driving up funding costs for smaller, privately-run firms, while also prompting an exodus by individual investors from equities. To avoid a deeper selloff, state-backed funds -- known locally as the national team -- are shoring up the market through purchases of large-cap shares, according to CIMB Securities Ltd. Last week’s sovereign rating cut by Moody’s Investors Service only added to the impetus.

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