It has been hard not to make money in Chinese stocks this year. Shares in Shanghai and Shenzhen have risen by 33 and 73 per cent respectively.
Nice enough - but miserly next to Shenzhen's ChiNext. This market is skewed towards small and medium-sized companies in sectors such as healthcare and technology. Tech stocks on ChiNext have more than doubled this year.
Part of the appeal of ChiNext companies is official goodwill. Chinese authorities have emphasised the key role of smaller companies and the "new economy" as crucial to economic rebalancing and growth.
But, inevitably, valuations have become stretched. Video technology company Leshi Internet Information, the largest ChiNext constituent with a $22bn market capitalisation and a 6 per cent weight in the index, has risen fivefold this year. It trades on 170 times 2016 forecast earnings, which are expected to be 50 per cent higher than 2015 numbers. Online financial data company East Money Information has similar metrics.
But there are other options. Hong Kong tech stocks have lagged behind. Regulatory barriers have limited investment from mainland China. This may change. A scheme allowing Hong Kong investors to trade Shenzhen stocks is expected to come this year; regulators may also allow mainland Chinese to trade some Hong Kong mid-cap stocks. Companies such as software developer Kingsoft, valued at $5bn, could benefit. It trades at just 21 times 2016 forecast earnings - with growth of 63 per cent expected.
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