China’s stocks awakened by record foreign buying as brokerages call for a market rally, policy easing
- Shanghai Composite Index rose to a three-month high, breaking out of 200-point trading range since March following upbeat broker reports
- Foreign funds added to purchases on Wednesday, after scooping up US$3.4 billion of stocks in a record binge on Tuesday
Net buying of Chinese onshore stocks amounted to 21.7 billion yuan (US$3.4 billion) through the Connect scheme with Hong Kong on Tuesday, according to exchange data. That is the biggest rush since the cross-border channel was introduced in 2014.
“Investors should be looking for opportunities to jump onto the boat,” said Zeng Wanping, an analyst at China Galaxy Securities. “There’s no systemic risk currently, but it still remains to be seen if this will turn into a raging bull market.”
“We think market performance will be driven more by earnings growth, rather than a valuation re-rating,” said Bruce Pang, head of research and macro analysis at China Renaissance Securitiesin Hong Kong. “Market reforms and opening would be upside catalysts.”
Guotai Junan, in a report on May 23, cited the receding risk of inflation to back its call for a stock rally. Beijing has taken a variety of measures to talk down commodity prices. Prices of iron ore, steel and a host of raw materials reached records in recent weeks, fanned by a breakdown in supply chains and an ongoing global economic recovery.
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China International Capital Corp, China’s top investment bank, speculated on Tuesday that the government could loosen its fiscal tightening over the next two months. The view was based on fiscal surplus in the first four months, and a potentially smaller deficit than budgeted for the rest of 2021.
The rally and brisk trading produced several clear and early winners on Wednesday. Brokerage Industrial Securities soared by the 10 per cent limit, while CSC Financial rose 1.4 per cent.
Popular bets that have fuelled a run-up in Chinese stocks over the past year have regained favour among foreign investors. Kweichow Moutai and China Tourism Group Duty Free rose after topping the list of foreign buying on Tuesday.