AS Chinese individual investors pour back into the world’s hottest stock market, they’re leaving their fingerprints all over the place. The most telltale sign: The Chinese equivalent of penny stocks, assets that have long held an allure for amateurs, are trouncing the benchmark index.

    Shares in China’s CSI 300 Index that were quoted below 5 yuan (81 U.S. cents) at the end of September have since jumped an average 63 percent. That compares with a 35 percent gain for all index stocks and 11 percent for those priced above 50 yuan.

    That outsized rally reflects the growing market impact of inexperienced investors in a country, where new stock accounts are opening at the fastest pace since 2007 and individuals comprise about 80 percent of equity trading. While professional investors measure a stock’s worth relative to the company’s assets or earnings prospects, it’s the price appearing on computer screens that matters most to people like 35-year-old housewife He Mei. As she sees it, the math is simple — low price equals low risk and lots of value.

    “Expensive stocks are risky,” she said by phone from the southwestern city of Chengdu, capital of Sichuan Province. “Any drops will result in huge losses.”

    He said she recorded a return of about 60 percent in her 300,000 yuan account since China cut interest rates in late November, versus 37 percent for the CSI 300. She bought her most profitable stocks at prices below 20 yuan and said she won’t touch shares above 50 yuan. She declined to provide transaction details, saying she’s uncomfortable sharing private financial documents.

    The advance in low-priced equities, which is unique to China among the world’s five biggest markets, ratchets up pressure on the nation’s authorities to educate a new class of investors who had until recently avoided stocks in favor of real estate and banks’ wealth management products.

    It also poses a challenge for institutional investors struggling to keep up with gains in the US$5 trillion market and contain risks at the same time. Chinese equity mutual funds have returned an average 14 percent during the past three months, trailing the CSI 300 by 29 percentage points, while China-focused hedge funds tracked by Evestment gained 7.9 percent in the fourth quarter, versus the equity index’s 44 percent advance.

    “Sophisticated investors will generally buy companies, not stocks,” said Vincent Chan, the Hong Kong-based head of China research at Credit Suisse Group AG. “But for A-share investors, stocks are just stocks, so they buy them when they’re still going up.”

    The biggest winners in the current rally are already turning expensive on traditional valuation metrics. Lanzhou LS Heavy Equipment Co., a machinery maker that started trading at 1.68 yuan Oct. 8, has since surged more than 12-fold and now has a price-to-earnings ratio of 227, more than 14 times that of the CSI 300.

    Aluminum Corp. of China Ltd., whose Shanghai-traded A shares were priced at 3.88 yuan at the end of September, has gained 57 percent even after the company lost money in the year ended Sept. 30 and analysts predicted further losses in 2015. The firm’s domestic shares are valued at an 89 percent premium to their Hong Kong-listed counterparts.

    While stocks priced below the equivalent of US$1 in the United States are often associated with tiny companies and market manipulation, in China some of the nation’s biggest firms trade below that level. Aluminum Corp. of China, also known as Chalco, is the country’s largest producer of the metal and has a market value of about US$11 billion.

    “I’m not sure how long this rally will last,” said Zhu Lixu, an analyst at Xiangcai Securities Co. Some Chinese investors “tend to ignore important fundamentals,” Zhu said. (SD-Agencies)