One of China's best-performing stocks this month is a tiny glass company you've never heard of — but nobody seems to know why.
State-owned Luoyang Glass (Shanghai Stock Exchange: 876-SZ) is the best performer in the Shanghai Composite (Shanghai Stock Exchange: .SSEC) so far this month, up 37 percent as of Wednesday morning. The stock has also hit the 10 percent daily trading limit three times in recent days. The Henan province-based company is rarely more than a blip for investors: Luoyang is worth $1.2 billion, a measly 0.03 percent of the Shanghai Composite's total market cap of more than $4 trillion.
The only thing is, it's unclear why Luoyang's stock is jumping, and even the company says it doesn't know why.
Late Monday, the firm issued a statement telling investors to proceed with caution and to consider fundamentals. The company even warned of weak profitability, just a few days before it's due to report first-half results.
Luoyang, which makes products like sheet and float glass, has alternated annually between profits and losses over the last few years. It's not even a company that many analysts follow: Only one has issued a rating for the company, according to Reuters data.
Still, the recent moves fit into a common pattern in China.
"Retail investors still prefer smaller companies because the momentum for those smaller caps tends to be stronger," said Tony Li, an analyst with China Galaxy International Securities.
Smaller companies with lower market values might mean higher volatility, but that can also translate to better profitability and returns, especially as investors look for creative investment themes in China, Li added.
The relatively tiny glass company's unexplained move is certainly a reminder that China's volatile markets are still ironing out some kinks. Regulators have been working over time since a massive crash in 2015 wiped out trillions in market value. Some people were even arrested in the aftermath as the government tried to show it was serious about protecting investors and fighting market manipulation.
More recently, the Shanghai Stock Exchange has taken on more oversight responsibilities, looking into any corporate actions that may pose financial risks.
Last month, Chinese stocks posted a mini-crash dubbed "Black Monday." That day, the Shanghai Composite closed down 1.4 percent, which was its worst performance in months, but nowhere near the sheer drops investors saw two years ago.
Experts say all signs are pointing to a market that is starting to mature — albeit a bit slowly.
"The A-share market has gotten a lot more rational, and there are more growth-oriented equity proxies than in the Hong Kong market," said Nomura's head of China equity research and chief strategist Wendy Liu, referring to another name for stocks traded on the mainland. "I sense that sentiment toward investing in China has continued to warm up."