Less than five months after China’s equity bubble burst, the Shanghai Composite Index is surging once again.
This month’s 11% rebound is one of the biggest surprises in global markets after international money managers all but gave up on Chinese stocks in the wake of a US$5 trillion ($7 trillion) crash, according to JPMorgan Chase & Co. What’s even more remarkable is that the gains look like the result of buying from ordinary investors, rather than the government-run funds who sought to prop up prices during the rout.
Signs of improving confidence are everywhere. Margin debt is rising for the first time in five months, volumes have picked up and companies favored by individual investors are leading the rebound. While state-owned funds still influence the market, evidence of heavy intervention has dwindled as late-day rallies become less frequent and purchases by controlling shareholders shrink. The market seems to have entered a “self-recovery” phase, as President Xi Jinping described it in a speech late last month.
“The answer is yes -- it can stand on its own,” said Adrian Mowat, the chief Asia and emerging markets equity strategist at JPMorgan in Hong Kong. “When you see a big fall in the market, you think ‘Why would equity investors ever go back?’ In our part of the world, we do get corrections in markets and some people look at them as opportunities to buy at better prices.”
Just how long the gains will last is still a subject of fierce debate. While bulls point to increased stimulus from China’s central bank and early signs of economic recovery, pessimists say current valuations are unjustified as corporate earnings shrink. Hao Hong, one of the few forecasters to call both the start and peak of China’s last equity boom, predicts this one won’t last.
“It’s a bear-market rally,” said Hong, the chief China strategist at Bocom International Holdings Co. “Sometimes a bear-market rally can be more ferocious than a bull-market rally.”
What’s clear is that a sense of normalcy has returned to the world’s second-largest equity market after months of turmoil that rattled global investors. Foreigners have been adding to holdings through the Shanghai-Hong Kong exchange link for the past two weeks, while volatility in the benchmark index has eased to an almost four-month low.
Individual investors, who account for more than 80% of volumes in China, are also returning. The number of new stock traders tracked by the nation’s clearing agency has increased for the past two weeks, while margin debt has climbed 14% this month to exceed 1 trillion yuan ($220 billion).
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This month’s 11% rebound is one of the biggest surprises in global markets after international money managers all but gave up on Chinese stocks in the wake of a US$5 trillion ($7 trillion) crash, according to JPMorgan Chase & Co. What’s even more remarkable is that the gains look like the result of buying from ordinary investors, rather than the government-run funds who sought to prop up prices during the rout.
Signs of improving confidence are everywhere. Margin debt is rising for the first time in five months, volumes have picked up and companies favored by individual investors are leading the rebound. While state-owned funds still influence the market, evidence of heavy intervention has dwindled as late-day rallies become less frequent and purchases by controlling shareholders shrink. The market seems to have entered a “self-recovery” phase, as President Xi Jinping described it in a speech late last month.
“The answer is yes -- it can stand on its own,” said Adrian Mowat, the chief Asia and emerging markets equity strategist at JPMorgan in Hong Kong. “When you see a big fall in the market, you think ‘Why would equity investors ever go back?’ In our part of the world, we do get corrections in markets and some people look at them as opportunities to buy at better prices.”
Just how long the gains will last is still a subject of fierce debate. While bulls point to increased stimulus from China’s central bank and early signs of economic recovery, pessimists say current valuations are unjustified as corporate earnings shrink. Hao Hong, one of the few forecasters to call both the start and peak of China’s last equity boom, predicts this one won’t last.
“It’s a bear-market rally,” said Hong, the chief China strategist at Bocom International Holdings Co. “Sometimes a bear-market rally can be more ferocious than a bull-market rally.”
What’s clear is that a sense of normalcy has returned to the world’s second-largest equity market after months of turmoil that rattled global investors. Foreigners have been adding to holdings through the Shanghai-Hong Kong exchange link for the past two weeks, while volatility in the benchmark index has eased to an almost four-month low.
Individual investors, who account for more than 80% of volumes in China, are also returning. The number of new stock traders tracked by the nation’s clearing agency has increased for the past two weeks, while margin debt has climbed 14% this month to exceed 1 trillion yuan ($220 billion).
Click Here To Register For Free Trial Services OR Give A Missed Call : +6531581402 Follow Us On Twitter : www.twitter.com/epicresearchsg Like Us On Facebook : www.facebook.com/EpicResearchSingapore Need Any Assistance Feel Free To Mail Us at : info@epicresearch.sg
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