Business

China stirs up market madness, risking repetition of the 2015 bubble

(Bloomberg) – Chinese stocks continued their recent rapid rise, helped by an enthusiastic refrain from the country’s influential state media.

The CSI 300 index jumped 4.2% on Monday morning, the most since February 2019. It was after jumping nearly 7% last week. Turnover on the gauge was more than three times the average for this time of day. Brokerages dominated gains after China International Capital Corp. raised target prices for the industry, predicting that the stock market would double in value over the next 5-10 years.

A front page editorial for the Securities Times on Monday said that promoting a healthy bull market after the pandemic is now more important than ever to the economy. The article pinpointed the accelerated gains on stock market reforms and excess global liquidity, while saying that the struggle between world powers highlights the importance of a mature financial market.

Chinese state-run media have long guided investors to key moments in the markets, whether it is raising stock prices or calming overheated speculation. While a strong domestic stock market would send a positive signal on China’s resilience to the coronavirus pandemic, as well as on fundraising from aid companies, it may also invite bubbles – as there are was five, when the stock market collapsed after a debt-fueled rally.

The state is very careful about creating a new bust-bust as seen in 2015, realizing that the damage to confidence that comes from the bust is greater than the good of the climb, said Wang Zhuo, manager of The funds at Shanghai Zhuozhu Investment Management Co. remain in the sectors we already own, which are largely undervalued because we benefit more from the alpha than the market beta.

The CSI 300 is up 12% this year, the largest gain among the world’s major benchmarks, to trade at a five-year high. Its 14-day relative strength climbed to 86, the highest since December 2014.

Signs of investor exuberance are multiplying, with daily sales on the continent exceeding 1 trillion yuan ($ 141 billion) Thursday and Friday and heading towards a similar level Monday, which would be the longest of this type since March. The rise in risk appetite led to a rout of Chinese sovereign bonds, with the yield on the 10-year note increasing to 7 basis points on Monday.

The number of continental comments and retweets containing the term bull market over the weekend has been about more than 10 times the 90-day average, according to the Baidu Index.

In another illustration of sentiment, Semiconductor Manufacturing International Corp. is expected to hold the continent’s largest share sale in a decade, as China’s largest chip maker raises capital as the United States tightens restrictions on technology sales to the nation. The SMIC could sell up to 53.2 billion yuan of shares, when the details of the offer were published in a statement released on the Shanghai Stock Exchange on Sunday.

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