A client watches the stock market at the Stock Exchange in Hangzhou, China, on September 27, 2024.
Coast Photo | norphoto | Getty Images
BEIJING – The meteoric rise in Chinese stocks so far looks different from the market bubble in 2015, analysts said.
Mainland Chinese mainland stock indices rose more than 8% on Monday, extending their winning streak on stimulus hopes. Trading volume on the Shanghai and Shenzhen Stock Exchanges reached 2.59 trillion yuan (368.78 billion US dollars), exceeding the highest level of 2.37 trillion yuan on May 28, 2015, according to Wind Information.
Over a six-month period from 2014 to 2015, the value of China's stock market doubled, while leverage rose, Aaron Costello, regional head for Asia at Cambridge Associates, noted on Monday.
He said that this time the market has not risen as much, while the leverage is lower. “We are not in the danger zone yet.”
Stock market leverage in both percentage and value terms was much higher in 2015 than data released Monday showed, according to Wind Information.
The Shanghai Composite Index in June 2015 rose above 5,100 points, a level it has never recovered since the market slump later that summer. MSCI was late that year in adding mainland Chinese stocks to its globally tracked emerging markets index. Sentiment was also affected by Beijing's wavering policy on a crackdown on borrowed money trading and a sudden devaluation of the currency. Chinese yuan Against the US dollar.
This year, the yuan is trading stronger against the dollar, while foreign institutions' allocation to Chinese stocks has fallen to multi-year lows.
The Shanghai Composite Index closed at 3,336.5 on Monday, before mainland stock exchanges closed for a week-long holiday to commemorate the 75th anniversary of the People's Republic of China. Trading is scheduled to resume on October 8.
In the run-up to the 2015 market rebound, Chinese state media did just that It encouraged investment in the stock marketWhile looser rules allowed people to buy stocks with borrowed money. Beijing has long sought to build up its domestic stock market, which is nearly 30 years old and much younger than the U.S. stock market.
Strong political signals
The market's latest gains follow announcements made last week of economic support and programs to encourage institutions to pump more money into stocks. The news helped stocks recover from near-year lows. The CSI 300 rose nearly 16% Best week since 2008
Chinese President Xi Jinping on Thursday chaired a high-level meeting calling for halting the decline in the real estate market as well as strengthening fiscal and monetary policy. The People's Bank of China last week also cut interest rates and the amount existing mortgage holders have to pay.
“Politics is much stronger and [more] This time it has been more coordinated than in 2015. However, the economy faces greater headwinds[s] “Now compared to then,” said Zhou Ning, author of “China’s Guaranteed Bubble.”
One week of massive gains for stocks doesn't mean the economy is on track for a similar rebound.
The CSI 300 is still more than 30% below its February 2021 high, a level that surpassed the index's 2015 high.
“The Japanese experience provides an important perspective, where the Nikkei 225 rebounded four times by an average of 34 percent on its way to a cumulative decline of 66 percent from December 1989 to September 1998,” Stephen Roach, a senior fellow at Yale Law School, noted. China Center Paul Tsai School, Tuesday in a Blog post Which was also published in the Opinion section of the Financial Times.
Economic data over the past few months have indicated slowing growth in retail and manufacturing sales. This has raised concerns that China's GDP will not reach the full-year target of around 5% without additional stimulus.
“I think what's missing is the key to a lot of this, which has yet to be revealed, which is going to be a real confidence-boosting measure, is how they're going to fix the finances of local governments,” Costello said, referring to the local trusts he once said. It relies on land sales to generate revenues to spend on public services.
While the Chinese authorities have lowered interest rates and eased some restrictions on home purchases, the Ministry of Finance has not yet announced the issuance of additional debt to support growth.
Animal spirits at play
Peter Alexander, founder and managing director of Z-Ben Advisors, expects the level of fiscal stimulus – when it is likely announced in late October – to be lower than markets are hoping for.
“Investors may be a little hesitant, as people like to say,” he said Monday on CNBC.Street signs asia.”
He added in a written response that his experiences in 2007 and 2015 indicate that the Chinese stock market rally may continue for another three to six months, or end suddenly.
“These are pure animal instincts and the Chinese are preoccupied with the stock market going up,” Alexander said. He added that there are risks in the market resulting from how unprepared the stock trading system is for a surge in buying.
Data on the number of new retail investors in China this year was not publicly available. Reports She notes that brokerage firms have been inundated with new orders, a reflection of how people piled into the stock market nearly a decade ago. The Shanghai Stock Exchange said on Friday that the open market transactions had been confirmed Abnormally slow.
Look for earnings growth
“China was cheap and was missing a catalyst,” Costello said. “The catalyst happened to unlock value.”
“Basically, we need to see corporate profits rise,” he said. “If that rate doesn't go up, it's all a short-term rise.”
Beijing's efforts earlier this year to halt the market's decline included changing the head of the securities regulator. Stocks rose, only to see the rally fade in May.
One factor that could send stocks beyond May levels is that earnings per share expectations have stabilized versus cuts earlier this year, James Wang, head of China strategy at investment bank UBS Research, said in a note on Monday.
Lower U.S. interest rates, a stronger Chinese yuan, increased stock buybacks and a more coordinated response by policymakers also supported gains, he said. Wang's latest price target of $70 on the MSCI China Index is now just a few cents higher than where it closed on Monday.
— CNBC's Hoy Ji Lim contributed to this report.
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