A customer watches the stock market at an exchange in Hangzhou, China, on Sept. 27, 2024.
Costofoto | Nurfoto | fake images
BEIJING – The rise in Chinese stocks so far looks different from the market bubble in 2015, analysts said.
Mainland China's main stock indexes rose more than 8% on Monday, extending a winning streak on stimulus hopes. Trading volume on the Shanghai and Shenzhen stock exchanges reached 2.59 trillion yuan ($368.78 billion), surpassing a peak of 2.37 trillion yuan on May 28, 2015, according to Wind Information.
Over six months between 2014 and 2015, the Chinese stock market doubled in value while leverage increased, Aaron Costello, regional director for Asia at Cambridge Associates, said Monday.
This time, the market has not risen as much, while the leverage is lower, he said. “We are not in the danger zone yet.”
Stock market leverage in percentage and value was much higher in 2015 than Monday's data showed, according to Wind Information.
In June 2015, the Shanghai Composite surpassed 5,100 points, a level it has never recovered since the market crash that same summer. That year, MSCI delayed adding mainland Chinese stocks to its globally tracked emerging markets index. Also hurting confidence were Beijing's comings and goings to crack down on trading with borrowed funds and a surprise devaluation of the chinese yuan against the US dollar.
This year, the yuan is trading stronger against the dollar, while foreign institutional allocation to Chinese stocks has fallen to multi-year lows.
The Shanghai Composite closed at 3,336.5 on Monday, before mainland stocks closed for a week-long holiday commemorating the 75th anniversary of the People's Republic of China. Operations are scheduled to resume on October 8.
In the run-up to the 2015 market rally, Chinese state media had He encouraged investment in the stock market.while lax rules allowed people to buy shares with borrowed funds. Beijing has long sought to strengthen its domestic stock market, which at about 30 years old is much younger than that of the United States.
Strong political signals
The market's latest gains follow last week's announcements of economic support and programs to encourage institutions to invest more money in stocks. The news helped shares recover from roughly their lowest levels of the year. The CSI 300 rose almost 16% in its The best week since 2008.
Chinese President Xi Jinping led a high-level meeting on Thursday in which he called for stopping the decline in the property market and strengthening fiscal and monetary policy. Last week, the People's Bank of China also cut interest rates and the amount existing mortgage holders must pay.
“Politics is much stronger and [more] concerted this time than in 2015. That said, the economy faces greater headwinds[s] now compared to then,” said Zhu Ning, author of “China's Guaranteed Bubble.”
A week of massive stock gains doesn't mean the economy is on track for a similar recovery.
The CSI 300 remains more than 30% below its February 2021 high, a level that had even surpassed the index's 2015 high.
“The Japanese experience provides important perspective, as the Nikkei 225 index 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, researcher principal at Yale Law. The school's Paul Tsai China Center said Tuesday in a blog post which was also published in the opinion section of the Financial Times.
Economic data in recent months has pointed to slower growth in retail sales and manufacturing. That raised concerns that China's gross domestic product would fall short of the annual target of around 5% without additional stimulus.
“I think what's missing is the key to a lot of this, that hasn't come to light, what would be a truly confidence-building measure, is how they're going to fix local government finances,” Costello said, pointing to a perhaps the local coffers. It depended on the sale of land to obtain income and spend it on public services.
While Chinese authorities have cut interest rates and eased some restrictions on home purchases, the Finance Ministry has yet to announce additional debt issuances to support growth.
Animal spirits at play
Peter Alexander, founder and CEO of Z-Ben Advisors, expects the level of fiscal stimulus (when it is likely to be announced in late October) to be lower than markets expect.
“Investors may be a little nervous, as people like to say,” he said Monday on CNBC.Asian traffic signs.”
It added in a written response that its experiences in 2007 and 2015 indicate that the Chinese stock market rally could last another three to six months, or end abruptly.
“This is pure animal instinct and the Chinese have been holding back waiting for a stock market rally,” Alexander said. He added that there are market risks due to the lack of preparation of the stock trading system for the increase in purchases.
Data on the number of new retail investors in China this year was not publicly available. Information indicate that brokerages have been overwhelmed with new applications, echoing how individuals entered the stock market almost a decade earlier. The Shanghai Stock Exchange said on Friday that transactions had been confirmed at the market open. abnormally slow.
Seeking profit growth
“China was cheap and lacked the catalyst…The catalyst came to unlock value,” Costello said.
“Basically, we need corporate profits to increase,” he said. “If that doesn't increase, this whole thing will be a short-term blowup.”
Beijing's efforts earlier this year to stem a market slump included changing the head of the securities regulator. Stocks rose, but the rally fizzled out in May.
One factor that may push stocks above May levels is that earnings per share forecasts have stabilized from downgrades earlier this year, James Wang, head of China strategy at UBS, said in a note Monday. Investment Bank Research.
Lower U.S. interest rates, a stronger Chinese yuan, larger share buybacks and a more coordinated response from authorities also support the gains, he said. Wang's latest price target of $70 on the MSCI China Index is now just a few cents above where it closed on Monday.
— CNBC's Hui Jie Lim contributed to this report.