After gaining nearly 40% so far this year, Shenzhen’s ChiNext is one of the best performing stock markets across the world’s major economies.
And one of the companies that has come to symbolise the Nasdaq-style board’s bull run is – rather appropriately – a cattle firm.
Tianshan Animal Husbandry was trading below Rm6 per share for most of the last two years. But its share price started to spike in the middle of August and as of last week it was trading at Rmb35 – a 500% increase that gave the Xinjiang-based farmer a market valuation of Rmb10 billion ($1.45 billion).
How much of that was justified by fundamentals?
Well, beef prices have been on the rise, climbing higher for 10 consecutive weeks since early June. The uptick has been fuelled by more demand for meat as the catering industry recovers from the lockdowns of the Covid-19 outbreak.
Another contributing factor in the share price surge might be Beijing’s diplomatic duel with Canberra, which has led to the banning of imports from four of the largest Australian meat processors.
According to state broadcaster CCTV, prices for cattle in Hebei, a major beef producing province, have been reaching Rmb83 per kilo (about Rmb45,650 per animal).
But that price tag still doesn’t do much to support Tianshan Animal’s stock market capitalisation. The main asset on the company’s most recent balance sheet was 596 heads of cattle, National Business Daily notes. That means that each animal is being valued at Rmb16.8 million, it reckons. “This must be the most expensive beef in history,” the newspaper says. “Even precious Matsusaka beef from Japan can’t compare with Tianshan Animal’s products.”
Tianshan does have other assets, of course. But other newspapers have toyed with its investment worthiness in a similar way and commentators have taken to calling the company “the demon stock of 2020”.
Investors describe other firms with logic-defying share prices using the ‘demon stock’ term. A prior example was internet video firm Baofeng. Also listed on ChiNext, its share price climbed by the 10% daily limit for 34 of the 40 trading sessions following its market debut in March 2015 – a period when A-shares went into overdrive before imploding in a major meltdown.
This time around the main bourse in Shanghai has been a little lacklustre (the benchmark Shanghai Composite Index is up no more than 6% year-to-date). ChiNext has been unrestrained in comparison, even topping Shanghai’s main board on turnover last week – the first time that this has ever happened. That was no ordinary feat, given the much larger market capitalisation of Shanghai A-shares.
Trading activity on ChiNext has been spurred by deregulation, especially a lifting of the daily limit on stock price movements to 20% from the prior 10% (see WiC509).
But the unexpected volatility of a group of ‘demon stocks’ has still spooked regulators. Earlier this month the Shenzhen Stock Exchange said it would be reporting cases of market manipulation to the China Securities Regulatory Commission and Tianshan Animal was added to one of its watchlists. Following a rare commentary on the stock market from Xinhua, which warned against excessive speculation, the Shenzhen bourse suspended trading in three companies, including Tianshan Animal last week.
So is the deregulation to blame for the sudden surge in volatility (and perhaps responsible for Tianshan’s booming stock price too)? Certainly, it seems to have piqued investor interest in trading on ChiNext, because daily gains aren’t constrained at the same levels as other bourses. “Speculation would decline if all the Chinese mainland stock markets adopted a 20% trading limit,” was the contrary verdict of CBN, a major local media group.
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