Small-cap stocks stage rebound after CSRC refutes rumors

The Wind Micro Market Cap Index, which tracks 400 of the smallest-cap companies listed in the A-share market, closed up 9.68 percent on Wednesday amid a broad market rally, following the late-night response by the CSRC on Tuesday saying that the recently issued delisting guidance doesn’t target small-cap stocks but aims to clear out “zombie shell” companies and “black sheep” stocks.

Observers said that the late-night reply by the China Securities Regulatory Commission (CSRC) refuting market rumors showed that it attaches great importance to stabilizing investor sentiment, especially targeting small and medium-sized investors, with a determination to further regulate the market.

The adjustment targeting delisting aims to step up efforts to clear out “zombie shell” companies and “black sheep” rather than targeting small-cap stocks, with sound arrangements planned in standard setting and transitioning management, which will not have an impact on the market in the short term, Guo Ruiming, head of the CSRC Department of Listed Company Supervision, said in the Tuesday statement.

Guo stressed that market rumors about the adjustment targeting small-cap stocks are a pure misunderstanding. The market rumors claimed that the adjustment has had a major impact on Chinese small-cap stocks, which have slumped previously.

Guo’s response was necessary as the market rumors were misperceptions, especially as most small-cap stocks normally do not reach the threshold for delisting, said Dong Shaopeng, an expert with the Chongyang Institute for Financial Studies at Renmin University of China.

The delisting guidelines don’t target small-cap stocks but rather some “junk stocks” that may trigger the delisting conditions, Yang Delong, chief economist at the Shenzhen-based First Seafront Fund, told the Global Times on Wednesday.