China’s world-beating stock bull run unleashed by economic recovery and liquidity sparks fears of another 2015 meltdown
- The value of Asia’s largest stock market increased by US$1 trillion – an amount larger than the Dutch economy – in the past three weeks
- The frenzy reminds some observers of the 2015 run-up – also fuelled by liquidity and valuation expansions – which ended in a US$5 trillion wipeout
When Yi Huiman took over the helm of China’s securities watchdog 18 months ago, pundits in the nation with 166 million stock trading accounts saw the auspiciousness of his name and cheered.
“Easy” and “bountiful” are the propitious promises symbolised by the name – in Chinese characters -of the former banker, who spent 34 years working his way to the very top of China’s most valuable lender before being hand-picked to oversee the stock market. Yi, a trained statistician, did not disappoint.
Explanations for the spectacular rally in China’s stock market – the major indices came close to, but never did fall into bear territory throughout this year’s coronavirus pandemic – run the gamut from the arcane and conspiratorial to the geopolitical and macroeconomic. One thing that analysts, fund managers, brokers and traders can agree on is that they have not seen so much wealth being created so quickly for a very long time.
The easiest explanation points to China’s economic recovery, shown by the 3.2 per cent second-quarter growth that handily beat expectations, as consumption, investments, manufacturing and trade resumed in the world’s second-largest economy. Global funds, in search of higher returns in a world of zero interest rates, rushed into yuan-denominated assets in China, the first major economy to enter into, and emerge out of, a months-long lockdown during the Covid-19 pandemic.