China stock turnover surges past 1 trillion yuan
The best one-week rally in five years raises concerns of a steep correction that could hurt investors, and draws warning from regulator
Mainland equity markets saw turnover surge above 1 trillion yuan (HK$1.26 trillion) for the first time on record yesterday, fuelling the best one-week rally since 2009 after five volatile trading days that had triggered the biggest swings in benchmark stocks in four years.
Yesterday's six percentage point swing on the Shanghai Composite Index eventually ended with a gain of 1.3 per cent. Index bellwethers like energy heavyweight PetroChina and banking giant ICBC drove the rally .
Retail investors have cheered the latest leg of a rally that has driven the Shanghai Composite up 38.8 per cent so far this year as a sign that a near five-year-long bear market in mainland stocks is definitively over.
They see the launch of the Shanghai-Hong Kong Stock Connect scheme and a recent unexpected interest rate cut as reasons to remain optimistic, believing that the government is ready to step in to tackle any signs of a further slowdown in the economy.
Others are more circumspect, seeing the scale of recent moves as raising the risk of a significant correction and pointing out that the government has steered clear of outright stimulus to boost the economy.
A policy statement from Beijing government leaders yesterday pledged merely to keep the economy growing steadily while stressing the priority of improving the quality of growth while pursuing deep structural reform.
"There's no way that this bullish mood could be sustained, and it is certain that fresh fund inflows will run out very soon," said Dragon Life Insurance fund manager Wu Kan. "It is certain that a correction is imminent and it could be a huge one."
Exchange-traded fund investors have been taking profits on recent gains. Some US$845 million was withdrawn from the CSOP FTSE China A50 ETF in the last two weeks of last month - the biggest outflow since the US$5.7 billion fund was started in 2012. The US$9.7 billion iShares FTSE A50 China Index ETF lost US$585 million in the last week of last month, the most since 2009.
Boom-to-bust market cycles typically leave small investors paying the price for chasing the benchmark index as it moves higher.
"In our office, the main topic of conversation during office hours is the stock market as everybody who trades stocks appears to be excited about the rally," said Chen Junjie, a white-collar clerk with a Shanghai clothing firm. "Indeed, the key question for us is when we should cash out in this round of sudden rally?"
The China Securities Regulatory Commission warned investors yesterday of the risks of investing in stocks.
"Individual investors should beware the risks amid the volatile market, and make rational investments according to your own ability," Deng Ge, a CSRC spokesman said.
"[Investors] should not be misled by advice urging you to sell your property to participate in stock speculation."
Surges in mainland equity trading coincided with market peaks in 2009 and 2010. In November 2010 that triggered a 38 per cent slide for the Shanghai Composite.
The previous surge came on August 7, 2009, two days after the start of a 23 per cent retreat.
The index's 14-day relative strength index climbed to 92 yesterday, the highest level since the market's record peak in 2007 when it began a year-long decline. Traders typically believe a market is ripe for a fall when the RSI moves above 70.
