Upside in the world’s top-performing stock index puts it on path to break this year’s high as China turns on the liquidity taps
- The Shanghai Composite Index will probably rise to this year’s high of 3,270.80, implying an 8 per cent gain from Monday’s close, Citic Securities said
- Further loosening of monetary policies and continuing foreign inflows will buoy up stocks, China’s biggest listed brokerage said
Stocks in the world’s best-performing market of the past month have more room to gain, as China’s monetary authorities turn on the tap to inject more liquidity into the economy and financial system, according to a forecast by the country’s largest public traded broker.
The Shanghai Composite Index may rise by at least another 8 per cent from Monday’s close of 3,024.74, which would put it in the position to surpass the year’s record set in April, according to Citic Securities’ analysts led by Qin Peijing.
“With the expectations about improvements in policies and corporate earnings, an expansion of valuations will open up more room for an upside on the index,” the Citic analysts said in a report on Monday.
China’s financial markets are cheering, after the People’s Bank of China on Friday cut the money that banks must set aside by 50 basis points for all banks - with an additional full percentage point for city commercial lenders - and released an estimated 900 billion yuan (US$126 billion) of funds into the financial system to quench the thirst of highly leveraged borrowers and an economy whose growth pace is expected to slow to the worst annual pace on record.
The Shanghai Composite has gained 9 per cent over the past month, making it the best performer among the world’s major stock markets, on expectations that the government will roll out more pro-growth policies while the fallout of the US-China trade war has been priced in. The index rose 0.8 per cent at the close on Monday.