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The priciest equities in more than five years are proving no deterrent for stock traders in China, where the benchmark is now nearing its all-time high.
The CSI 300 Index rose 2.9 per cent on Tuesday to close at a 13-year high, taking this month’s gain to 7.4 per cent -- its best-ever start to a year. Shares of brokerages rallied, an indicator that investors are bullish on the market’s outlook, while turnover topped 1 trillion yuan (US$155 billion) for a seventh day in a sign of increasing activity from retail traders. A 5.1 per cent gain from Tuesday’s close would push the CSI 300 past its record from 2007.
While there was no single trigger for Tuesday’s surge, analysts and investors said gains accelerated after stock indexes punched through multiple bullish technical indicators. President Xi Jinping’s unusually upbeat comments about China’s future also added to the optimism. An abundance of cash in the country’s financial system, coupled with ultra-low borrowing costs, is encouraging stock traders to take on more leverage.
The CSI 300 has surged almost 60 per cent since a low in March last year, a rally that gained momentum after Beijing made it easier to buy stocks using borrowed money. That advance helped push the value of China’s domestic equities to a record US$11 trillion.
“There’s no lack of funds to buy stocks,” said Zhang Fuzhen, an analyst at Shanghai PD Fortune Asset Management. “Buying today was mostly driven by mutual funds and retail investors. The A share market is returning to its original trajectory, and that is up.”
Financial-related stocks were the biggest gainers Tuesday, with brokerages outperforming. China Merchants Securities Co. and CITIC Securities Co. gained at least 9.4 per cent. Insurance firms, which invest their premium in stocks, also rallied, with China Life Insurance Co. gaining 8.1 per cent and Ping An Insurance Group Co of China Ltd. adding 4.5 per cent in Shanghai. Online financial platform East Money Information Co. rose the most in more than a decade to a fresh high.
The CSI 300 Index is now at a level that indicates it is overbought, which some investors see as a signal that the rally won’t sustain. It’s also at its most expensive level since 2015, trading at around 17 times forward earnings.
However, a pullback on Monday gave rise to what investors saw as a good entry opportunity. With the Shanghai Composite Index punching through a key resistance level of 3,587 points Tuesday, analysts say this technical breakthrough opens up room for further upside.
”There are high expectations of a bull market after stock indexes broke through key levels,” said Manran Ma, general manager at Beijing Mamanran Asset Management Ltd.