BEIJING - Small-cap shares on the A-share market suffered their biggest loss in three months on Tuesday in volatile trade as profit-taking by investors led to capital outflows.
Eight companies listed on the ChiNext start-up board fell to their 10-percent daily trading limits. Beijing Ultrapower Software Co Ltd, the highest-priced stock on the A-share market, led the decline and closed lower at 212.36 yuan ($31.11), after gaining nearly 108 percent since Jan 25.
The small cap plunge was triggered by selling pressure as investors felt that the high valuations have not been commensurate with the profit growth and current prices, said analysts.
"The sharp decline was caused by the outflow of capital after investors booked profits from the high prices," said Zhang Qi, an analyst at Haitong Securities. "The adjustment is reasonable as the market has been facing an ever-increasing risk of overvaluations."
Meanwhile, the securities regulator said it would allow subsidiaries of listed companies to go public on ChiNext. The move further dented share prices of small-cap stocks as the regulator tried to balance the high valuations with increased supply of new shares, Zhang said.
Index heavyweights, however, recovered strongly led by banks and insurance companies ahead of the stock index futures debut on Friday.
The benchmark Shanghai Composite Index advanced by 1.02 percent in volatile trade to close at 3161.25 points.
China Pacific Insurance Co Ltd gained 7.18 percent to close at 28.22 yuan, while Hua Xia Bank Co Ltd jumped 4.35 percent to 12.72 yuan.
Analysts said index futures might trigger a temporary style change in the market on expectations that the new hedging instrument will help boost prices of undervalued blue chips. However, investors should remain cautious, as there are doubts whether the gains in large caps are sustainable.
"Index futures could provide an opportunity for the much anticipated shift from small caps to large caps," said Li Jianfeng, an analyst at Shanghai Securities. "But whether the gains will be sustainable remains to be seen because liquidity concerns still linger in the market."
Chinese banks extended fewer new loans in March as the government took further steps to rein in credit growth amid rising inflation and asset bubble risks.
Banks advanced 510.7 billion yuan in new loans last month, down from the 700.1 billion yuan in Feburary, according to the People's Bank of China.