The ratio of the CSI 300 to the CSI 2000 is extremely low, approaching the level before the large-cap blue-chip bull market at the end of 2016.

The data shows that the valuation ratio of the CSI 300 / CSI 2000 is at a historically extremely low level, nearing the level of late 2016 right before the large-cap blue-chip bull market started. The two indices respectively represent large-cap blue-chip style and small-cap style. Since the fourth quarter of last year, the performance of small caps has been stronger overall than that of large caps.

In response, Wu Kaida, chief strategy analyst at GF Securities, said: Given that small stocks have already surged beyond expectations, based on the historical pattern that the implied upper limit of small-cap gains during the spring rally is the largest increase, small caps may face a period of consolidation afterward. But can large-cap tech stocks take over from small caps and achieve a split-style surge? This would require an earnings-per-share (EPS) outcome that comes in above expectations, or a catalyst from new narratives.

When looking to buy on dips, pay attention to the benchmark indices represented by large caps: the CSI 300 ETF (510330.SH), which has a balanced style and a high share of new-quality productive forces, and the ChiNext 50 ETF (159367.SZ), which holds heavy positions in new-energy and communications equipment. The investment entry threshold is low—down to a few hundred yuan per lot—and its volatility is also lower than individual stocks.

Economic Daily News