New | China bull market masks breakdown in momentum
Just as the Shanghai gauge is hitting new highs, turnover is falling with new account openings
Just below the surface of the mainland's world-beating equity rally, signs of trouble are emerging.
While the Shanghai Composite Index touched a five-year high on Friday after a 63 per cent gain during the past year, other gauges of investor enthusiasm are tumbling. Turnover sank 47 per cent from its peak last month, while new equity account openings fell 50 per cent and purchases using borrowed money dropped 38 per cent. The number of stocks reaching new 52-week highs has declined 75 per cent in the past six weeks.
The indicators suggest to Deutsche Bank and Fortune SG Fund Management that the mainland's shares are no longer a one-way bet after monetary stimulus and a flood of new individual traders propelled the Shanghai gauge to eight consecutive months of gains through December.
Windsor Capital, one of the mainland's top 10 performing hedge funds, said last week investors would have to wait until the middle of this year before the US$5.1 trillion market resumed its advance.
"We have seen fewer new account openings, narrower trading turnover and heightened market volatility recently in the share market," said Chang Yuliang, the chief China and Hong Kong strategist at Deutsche Bank. "This does not bode well for this liquidity-driven rally."
Mainland investors opened about 447,000 accounts to trade equities in the week to January 16, down from a seven-year high of 892,000 in mid-December, while the number of accounts with transactions fell 29 per cent. The value of shares traded on the Shanghai exchange has dropped to 420.7 billion yuan (HK$528.8 billion) from a record 792.7 billion yuan on December 9.