China state giants the only stock winners in a divided market

Hong Kong

IN CHINA'S struggling stock market, it's easy to pick a winner. Back the state.

The SSE 50 Index comprising some of China's largest companies has surged 6.4 per cent in the past month, climbing to its highest level versus the broader Shanghai Composite Index in four years. Outside of the state giants, the rest of the market looks blighted: more companies on the Shanghai measure were at 52-week lows last week than at any time since 2013.

The outperformance is being driven by government policy: a regulatory campaign to curb leverage is driving up funding costs for smaller, privately run firms, while also prompting an exodus by individual investors from equities.

To avoid a deeper selloff, state-backed funds - known locally as the national team - are shoring up the market through purchases of large-cap shares, according to CIMB Securities Ltd. Last week's sovereign rating cut by Moody's Investors Service o…