Are S-chips finally catching up to the Chinese liquidity party?

S-chips gained 15% in three months.

China’s aggressive monetary policy easing might finally be spilling over to local stocks. After weeks of languishing behind Chinese stock markets, S-chips are finally showing signs of grooving to a faster beat.

According to Nicholas Teo of CMC Markets, S-chips really started to take off yesterday with the FTSE ST China Top Index gaining 1.93% to close at 216.34.

“On a three-month-return basis, the FTSE ST China TOP Index is up 9.47%, paling in comparison to the three-month-return on the CSI 300 at 36.37%. In yesterday’s trade, names like Yanlord (+7.6%), Cosco (+6.034%), China Fisheries(+5.263%) and China Everbright (+5.116%) led the advancers. Critically, trading volumes for these names seem to have exploded on the upside,” he said.

S-chips, however, still have quite a way to go: they have so far managed a 15% return in these past three months, falling short of the major Chinese indices which have gained more than 30% over the same period.

“This shortfall is even clearer when considering that as Chinese indices have all punched through their 2010 highs - hovering more than 25% above their 2010 highs in the case of the CSI 300 - the FTSE ST China Top Index is languishing at 30% below its 2010 highs,” he noted.