Foreign buying and surging volumes indicate momentum building for Shanghai Composite Index to break free

US election win for Joe Biden and encouraging vaccine news bolster risk appetite for Chinese stocks

The Shanghai Composite Index is just 3 per cent short of breaking out of a 250-point range that has held back the benchmark since July

2-MIN READ2-MIN

The prospects for Chinese stocks look upbeat in the wake of Joe Biden’s US election win and a promising Covid-19 vaccine from Pfizer. Photo: AFP

Published: 5:15pm, 10 Nov 2020Updated: 9:55pm, 10 Nov 2020

China’s onshore stocks look set to break free from four months of sideways trading on the back of rising turnover and foreign buying, while leveraged bets have risen to a five-year high.

A victory for Joe Biden in the US presidential election and the promise of a largely effective Covid-19 vaccine from Pfizer and BioNTech have removed uncertainty clouding stocks as traders factor in relatively stable US-China relations and a solid global recovery, analysts said.

The Shanghai Composite Index is now within 3 per cent of rising above a 250-point range that has held back the benchmark since July. It dropped 0.4 per cent on Tuesday after climbing 1.9 per cent a day earlier.

Some metrics signal that a breakthrough is imminent. Combined trading values of the mainland-traded stocks topped 1 trillion yuan (US$151.4 billion) for the first time since August on Monday, overseas buying surged to a one-year high of 19.7 billion yuan and the outstanding balance of margin trading rose to 1.44 trillion yuan – the highest level since 2015.

“There will be a re-rating of low-valuation cyclical stocks, such as commodity producers and financials,” said Zhang Xia, an analyst at China Merchants Securities. The mainland-traded stocks are “expected to conquer the high and the run-up will last beyond the end of the year.”