Kan Gu: Beware of the irrational speculation risk of ST stocks

Ask AI · How will a tighter delisting mechanism affect the trading logic behind “ST” stocks?

Recently, some “ST” stocks (including *ST stocks) have strengthened against the trend, and some funds have been positioning early for the expectation that they will be delisted off the risk warning list (i.e., “de-ST”). However, the investment risks of “ST” stocks are far higher than those of ordinary stocks. Whether they can successfully be de-ST is highly uncertain. Even if they do get de-ST, there are still questions about whether their real profitability can remain stable. Therefore, investors should still stay away from irrational hype in “ST” stocks.

Public companies under risk warnings are mostly plagued by core issues such as persistently weak operations and poor financial conditions. The “de-ST” logic that market funds are betting on is inherently highly uncertain. Whether the relevant listed companies can meet the de-ST requirements through operational improvements, asset integration, and other measures involves many variables, making the final outcome difficult to determine in advance.

Even if some companies manage to de-ST successfully, it only means the risk warning status is lifted; it does not mean there has been a fundamental improvement in operating quality. The market still needs to continuously test the subsequent stability of earnings and the continuity of business operations. Trading solely based on the expectation of being de-ST is, in essence, a high-risk form of speculation, and it does not provide a foundation for stable, value-based investing.

Judging from the market’s operating characteristics, the stage-by-stage rise in “ST” stocks is often driven by short-term funds, with relatively weak correlation between the stock price trend and the company’s intrinsic value. These funds typically operate with a “fast in, fast out” approach. After the stock price is quickly pushed up, they are prone to exit early, leading to large fluctuations in the share price. In addition, because some “ST” stocks have relatively limited liquidity, once market sentiment turns, they can easily experience a continuous one-way downward trend. Investors then find it difficult to control losses in a timely manner, and the speed at which risk spreads is fast.

As the basic systems in the capital market continue to improve, the enforcement strength of the delisting mechanism keeps increasing, and the market clearing speed has clearly accelerated. The old market logic of “shell resource” speculation has been gradually weakening. The room to maintain valuations by relying on concepts continues to be compressed. Listed companies that lack real operational support can hardly stay detached from fundamentals for the long term. If investors blindly follow the hype, they not only face the risk of large share-price volatility, but may also confront the possibility that the company’s operations continue to deteriorate and even that it could be delisted. Ultimately, this can lead to substantive investment losses.

For ordinary investors, a more reasonable choice is to buy and hold listed companies with stable operating conditions and sustainable earning capacity. The core of value investing is to obtain reasonable returns generated by the company’s operations, not to game uncertain theme-based concepts. While “ST” stock hype may produce stage-by-stage gains in the short term, the potential risks are far higher than those of ordinary stocks, and it is not suitable for most investors to participate.

The healthy operation of the capital market depends on a reasonable pricing mechanism and rational investing behavior. Over-hyping “ST” stocks is not only unfavorable to the effective allocation of market resources, but also easily misleads investors into forming irrational trading habits. When facing all kinds of hot themes in the market, investors should always use fundamentals as the core basis for judgment, uphold rational investing principles, and avoid the potential risks brought by irrational hype. This is also an important prerequisite for maintaining steady investing over the long term in the capital market.

Of course, if “ST” companies truly have substantive improvements in their main business, and the main business is set to continue trending better in the future, then such “ST” stocks can also be included in the scope of value investing. It’s just that there aren’t many “ST” stocks that can genuinely make a glorious turnaround. Unless investors have a great deal of confidence, it’s still better to be cautious.

Beijing Business Today commentator Zhou Kejing