Commentary on Political Economy

Monday, 6 July 2020


China stocks surge after state media urges investors to load up 
Chorus of support for equity market echoes ill-fated efforts in 2015 
 Analysts said Chinese authorities could be seeking to push up prices in the hope this would boost consumer spending 

China’s stock market recorded its biggest rally in more than a year on Monday after state media encouraged investors to pile into the market and reap the benefits of a post-coronavirus economic boom. State-owned Shanghai Securities News ran a story on Friday titled “Hahahahaha! The signs of a bull market are more and more clear.” A Xinhua story on Monday said investors were “running” into stocks while a front-page editorial in the state-run China Securities Journal on Monday talked up the prospect of a “healthy” bull market, adding that investors could look forward “to the wealth effect” of rising prices. The country’s CSI 300 index of Shanghai- and Shenzhen-listed shares jumped 5.7 per cent with trading volumes more than double their recent average. More than 280 of the CSI 300’s shares finished in positive territory, while many banks and brokerage firms rose by the daily maximum of 10 per cent.

The financials sector as a whole topped the leaderboard, up 9 per cent. Analysts said Chinese authorities could be seeking to push up prices in the hope this would boost consumer spending and support a broader economic recovery. But the chorus of support for China’s markets rekindled memories of 2014 and 2015, when state media cheered a more than doubling of stock prices. That rally later unwound in spectacular fashion with a 40 per cent collapse. Bloomberg data show that margin loans in China, where brokers provide clients with funds to buy stocks, are at their highest level since 2015. Feeding rallies in this way “is incredibly dangerous”, said Michael Every, Hong Kong-based strategist at Rabobank. “A near-6 per cent move in a day when you consider the wall of real-world worries is quite the eye-opener.” In Hong Kong, the Hang Seng index closed 3.8 per cent higher to meet the technical definition of a bull market, or a 20 per cent gain from a recent low.

 Some analysts said that retail investors in China — a dominant force in the mainland’s equity markets — were betting on the country’s economic recovery gaining momentum after controlling the spread of Covid-19. But others warned that apparent attempts by state media to juice prices could reflect concerns of capital flight from China at a time of rising tensions with Washington. Brokers on Monday noted signs of activity by Beijing’s so-called national team of state-backed buyers, which have been known to step in and support markets during periods of uncertainty. One pointed to unusually high trading volumes in mainland markets and sharp rises in the stock prices of state-owned insurance companies, a popular trade among such institutions. Chinese traders would now be watching official media for further promptings that they should try to ride the rally, said Ken Cheung, a strategist at Mizuho Bank. “Bullish sentiment has been building up over [the] past few days,” he added.

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