China Stock Turmoil 2015

China stocks re-enter bull market as investors jump back in

Turnover in Shanghai hits three-month high of 679 billion yuan

PUBLISHED : Thursday, 05 November, 2015, 9:03am
UPDATED : Thursday, 05 November, 2015, 6:52pm

Mainland stocks extended their rally on Thursday to close at their highest level in two and half months, up 20 per cent from a late August low, as investors turned more optimistic about the economy and jumped back into equities.

The benchmark Shanghai Composite Index advanced 1.8 per cent to 3,522.82, after rallying 4.3 per cent on Wednesday, finishing above the key 3,500 mark for the first time in two and half months. The index has surged 20 per cent from its August 26 low 2.927.29, technically entering bull market territory.

The large-cap CSI 300 rose 2.1 per cent on Thursday to 3,705.97.

However, Shenzhen stock market, dominated by small and medium-sized companies, underperformed its Shanghai peer. The Shenzhen Composite Index edged up 0.2 per cent to 2,093.47, while the Nasdaq-style ChiNext Index posted a slight retreat after a 6.4 per cent surge on Wednesday, closing down 0.8 per cent at 2,564.72.

Turnover continued to spike in Shanghai, reaching a three-month high of 679 billion yuan on Thursday, up 60 per cent from Wednesday’s 427 billion yuan and more than double Tuesday’s 246 billion yuan.

In Hong Kong, the Hang Seng Index opened lower on a negative US lead following remarks by US Federal Reserve chairwoman Janet Yellen that an interest rate rise remained on the cards next month, but recovered in later trade as mainland markets pushed higher. The benchmark closed flat at 23,051.04, with the Hang Seng China Enterprises Index, which tracks Hong Kong-listed mainland companies, up 0.5 per cent at 10,617.67. Turnover stood at HK$55.5 billion, sharply down from Wednesday’s HK$112 billion, but only a slight decrease from Tuesday’s HK$65 billion.

Leading the markets higher were financial stocks, with dozens of securities firms listed in Shanghai halted from trading after their price gains hit the 10 per cent daily limit, including Orient Securities, Huatai Securities and Industrial Securities, to name a few.

Among other top gainers, state-run New China Life Insurance jumped 5.3 per cent to 47.43 yuan, state-controlled China Citic Bank climbed 4.8 per cent to 6.8 yuan, Bank of Communications gained 2.8 per cent to 6.55 yuan and China Construction Bank rose 2.5 per cent to 5.65 yuan.

“Brokers were the clear winners as the recent bullish market might translate into higher trading volumes and investors seem to be treating them as a proxy for the market sentiment,” said Gerry Alfonso, director of Shenwan Hongyuan Securities in Shanghai. “The market sentiment seems to have improved considerably.”

Official statistics showed the margin lending balance in Shanghai and Shenzhen reached a two-month high of 1.05 trillion yuan by Wednesday.

A survey by the official China Securities Investor Protection Fund Corporation also indicated on Wednesday that investor confidence rose in October for the second straight month, as positive policies and ample liquidity have driven investors back into equity markets in the past few weeks.

On Wednesday, Premier Li Keqiang said at a State Council meeting that China would make great efforts to stabilise industrial production growth, while also deepening financial reform and pushing forward with the liberalisation of interest rates,

Chinese markets have taken a wild ride in the first 10 months of this year, with the Shanghai benchmark soaring 60 per cent to a seven-year high in mid-June before crashing 43 per cent within two months, triggered by a surprise yuan devaluation and fears of further economic slowdown. Stocks then started to rebound as Beijing rolled out massive rescue measures to stem the crash, including limiting short selling, setting up an emergency fund to purchase stocks, banning major stock holders from selling shares, cutting interest rates to boost liquidity and unveiling support policies for a number of sectors, among others.

By Thursday’s close, the Shanghai Composite Index was up 9 per cent since the start of the year. In October alone, the index rebounded 11 per cent.

“So it seems as if China’s aggressive and heavy-handed state intervention has quelled investor fears about the stock market,” said Angus Nicholson, an analyst for IG Group.

He added that Chinese investors started piling into stocks after a raft of economic data suggested the Chinese economy might be stabilising.

“Retail sales data and the Caixin Services PMI continue to point to the robust health in China’s tertiary sector,” Nicholson said. “China’s manufacturing PMIs released earlier in the week also indicate China’s monetary easing and fiscal stimulus are starting to have an effect in supporting Chinese growth as we approach the deadline for achieving the 7 per cent GDP growth target.”