Morgan Stanley says Chinese stocks are showing no signs of overheating that could result in repeat of 2015 sell-off
- An aggregate measure of China’s market sentiment now stands at 51, far from a reading of 80 that could trigger a meltdown, says Morgan Stanley
Chinese stocks’ world-beating rally has still some way to go and a repeat of the 2015 meltdown that wiped out US$5 trillion in market capitalisation is highly unlikely, according to Morgan Stanley research released on Wednesday.
Analysts at the US investment bank, led by Laura Wang, based the argument on a newly introduced aggregate gauge of nine metrics for the Chinese market, including trading values, new account openings and the number of stocks hitting daily limits.
Measured on a 0-100 scale, the reading is currently at 51, much below the 80 level that could trigger a sell-off, the report said. During the 2015 crash, the gauge rose to 100.
“We found such indicators useful in our analysis of the market cycle in 2015/2016,” said Wang. “The bull market is still ongoing. While market sentiment is clearly getting more excited, particular since Chinese new year, it has not yet reached what we’d consider overheating yet.”
While Chinese stocks have turned into the world’s best-performing market this year after a disappointing 2018, the rally has stoked concerns among investors whether the stocks have risen too quickly and if a major shake-out was in store.