World-beating Shanghai market ends year with a bang
Shanghai's benchmark index rose 4.2 per cent yesterday to another new high of 2,675.47 points, rounding off a dramatic comeback performance by the world's best-performing key market this year.
The rise was led once again by heavyweights Industrial and Commercial Bank of China (ICBC) and Bank of China (BOC), which was temporarily suspended from trading late in the day after rising the 10 per cent daily limit.
Yesterday's close capped a furious buying spree that has accelerated in the past two weeks since the index hit a record high of 2,249.11 points on December 14.
'The pursuit of these banking stocks is pushing up the whole market,' Guotai Junan analyst Wu Jianxiong said. 'These companies with huge market capitalisations listing on the mainland this year have had a huge effect on the market.'
Another reason for yesterday's surge was the release of more than 770 billion yuan of investor funds locked up in the hopes of getting allotments in the initial public offering of China Life Insurance, the country's biggest insurer, which starts trading on January 9.
The Shenzhen Composite Index rose 2.08 per cent yesterday to close at 550.59 points.
The Shanghai Composite Index is up 130.43 per cent for the year and 168 per cent from the eight-year lows it dipped to in June last year.
China ranks as the fifth best-performing market in the world this year - after the tiny exchanges of Peru, Cyprus, Venezuela and Vietnam - a far cry from the previous five years when the country consistently ranked among the world's worst performers.
'Retail investors have rediscovered their confidence in the market so you've seen a huge shift of money out of bank deposits and property into equities and it's going to continue,' said Erwin Sanft, the head of China research at BNP Paribas.
This revival in confidence was made possible by a host of reforms aimed at making China's murky markets more transparent and clarifying once and for all the longstanding question over whether the state's majority holdings in most listed companies would ever be sold in the market.
After this question was largely resolved in the affirmative, the lifting of a one-year embargo on initial public offerings allowed newly listed behemoths such as ICBC and BOC to lead the way in the resuscitation of the stock markets.
BOC ended yesterday up 9.92 per cent at 5.43 yuan, having risen almost 36 per cent in just one week, while ICBC finished 5.98 per cent higher on the day at 6.20 yuan, a 31 per cent jump from a week earlier.
ICBC's Shanghai-listed A shares have doubled from their late October debut while BOC is now up more than 76 per cent from its July flotation, after languishing near its debut price for most of the past six months.
'This is a high-quality rally in the sense that larger, better-quality companies are leading the market up,' Mr Sanft said.
'Next year it will keep going up because the alternatives to the stock market are not exciting.
'Once you have paid a bit of tax on your bank deposits and adjusted for inflation, which is expected to pick up next year, there is zero return from having money in the bank.'
After five years of continuous losses that only bottomed out in the middle of last year investors are wary of punting directly on stocks. Instead, they have chosen to invest through the burgeoning mutual fund industry, which has seen overall assets increase about 60 per cent in just the past few months.
