Shares in more than a dozen Chinese companies, from shipping companies to port operators, that have trade links with Russia or are close to its borders, have soared in the past week, although some have warned investors that their stocks are overvalued. This does not stop the Chinese ranks of small investors. Shares in Jinzhou Port, China’s northernmost seaport with direct sea routes to Russia, have surged 94% on the Shanghai Stock Exchange since February 24, when Russia invaded Ukraine. Stocks in China can rise or fall by as much as 10% in daily trading. This means that the shares of the port operator have risen by almost a daily limit for seven sessions in a row.
Jinzhou Port has repeatedly warned investors that its share price is too volatile and its valuation is “too high” compared to its peers.
“The company’s share price has seriously deviated from fundamentals,” the company said in a stock exchange statement Tuesday. “We specifically remind investors to pay attention to the risks of the transaction and make rational decisions.”
Shares in Jinzhou Port fell 10% on Tuesday but are still up 74% in two weeks.
Xinjiang Tianshun Supply Chain, a bulky cargo logistics company in the far northwest of Xinjiang, which directly shares a 60-mile border with Russia, also jumped 95% on the Shenzhen Stock Exchange compared to last year. last seven sessions.
Since the beginning of the war, even toll road operators and rail freight companies have grown. Heilongjiang Transport Development, the main operator of tolls in northeast Heilongjiang, which shares a 1,850-mile border with Russia, climbed 23%.
Changjiu Logistics, whose parent company operates direct freight trains between northeast China and Russia, also jumped 23% in the same period.
“Some Chinese investors believe that Russia now has no one to turn to but China,” said Hao Hong, managing director and head of research at BOCOM International. “Therefore, they believe that China will benefit from trade with Russia.”
He added that it is “quite possible” that some trade between China and Russia will increase in the wake of Western sanctions on Russia, especially on goods.
“China needs goods, and Russia may have to sell them cheap,” Hong said. “An ancient Chinese proverb says that when two clams fight, the fisherman wins.”
At the end of last month, China lifted restrictions on Russian wheat imports, which could solve the food security problems of the world’s second largest economy. The decision to allow the import of wheat from all regions of Russia was made during the visit of Russian President Vladimir Putin to Beijing. at the beginning of February. During his visit, the two countries signed 15 deals, including new contracts with Russian energy giants Gazprom and Rosneft.
Who is behind the madness?
The rally is being driven by small retail investors, which account for more than 80% of China’s stock market turnover, according to data from the Shanghai and Shenzhen stock exchanges.
Share purchase orders of less than 40,000 yuan ($6,338) or less than 20,000 shares account for about 40% of the money flowing into the Sino-Russian trading sector, according to Chinese financial data service East Money Information on Tuesday.
Medium-sized orders under 200,000 yuan ($31,692) or 100,000 shares account for about 36%.
Despite the enthusiasm shown by small traders, experts warn that it is too early to bet on the growth of trade between Russia and China. Beijing has been slow to help Russia after its economy has been hit by sanctions from around the world and will be wary of risking its much larger trade ties with Europe and the United States.
While China has refused to directly condemn the Russian invasion, some Chinese banks have reportedly limited funding for purchases of Russian goods for fear of violating possible sanctions. Last week, the Asian Infrastructure Investment Bank, a Beijing-backed development bank, said it was suspending all its activities in Russia as “a war is unfolding in Ukraine.”
Small investors in China may not be aware of the long-term effects of Western sanctions, experts told CNN Business.
“There is a gap between the legion of retail investors operating in a limited information environment and the government’s limited friendship with Russia,” said Geoffrey Halley, Asia Pacific senior market analyst at Oanda.
“Obviously, the man in the street believes that ‘US’ sanctions will not affect trade between China and Russia, especially in light of the recent deep partnership agreement between the two countries,” he said.
“Unfortunately, China also does huge business with the rest of the world, and even China’s diplomatic generosity can have limits,” he added.
Trade between the two countries reached $147 billion last year, according to Chinese customs. The world’s second largest economy is Russia’s No. 1 trading partner, accounting for 16% of the value of its foreign trade.
But for China, Russia matters much less: trade between the two countries accounts for only 2% of China’s total trade. According to Chinese customs statistics last year, the European Union and the United States have much larger shares, accounting for 13.7% and 12.5% respectively.
China also faces its own economic challenges that could make it difficult for Beijing to significantly increase trade with Russia.
Chinese Premier Li Keqiang said on Saturday that the country is aiming for GDP growth of around 5.5% this year, the lowest official economic growth rate in three decades. A weak real estate market, a resurgence of Covid-19 outbreaks, and Beijing’s zero-tolerance approach to the virus are damaging domestic demand and production.
“In my view, betting on a significant increase in commodity trade between China and Russia could end in disaster,” said Stephen Innes, managing partner of SPI Asset Management.