China Stokes a Stock-Market Mania, Risking Repeat of 2015 Bubble

Bloomberg News
Date: July 5, 2020

  • CSI 300 is most overheated since 2014 after gains accelerate
  • Brokerages surge as daily turnover tops 1 trillion yuan

Chinese stocks extended their recent rapid climb, aided by an enthusiastic chorus from the nation’s influential state media.

The CSI 300 Index jumped as much as 4.2% on Monday morning, the most since February 2019. That’s after it surged almost 7% last week. Turnover on the gauge was more than three times the average for this time of day. Brokerages led the gains after China International Capital Corp. hiked target prices for the industry, predicting the stock market will double in value in the next 5-10 years.

A front-page editorial in the Securities Times on Monday said that fostering a “healthy” bull market after the pandemic is now more important to the economy than ever. The article pinned the accelerating gains on stock market reforms and excess global liquidity, while saying the struggle between the “world’s powers” underscores the importance of a mature financial market.

China’s state media have long guided investors during key points in markets, whether talking up stocks or seeking to cool overheated speculation. While a strong domestic stock market would send a positive signal about China’s resilience to the coronavirus pandemic, as well as aid company fundraising, it also risks inviting bubbles — such as five years ago, when the equity market crashed after a debt-fueled rally.

“The state is very cautious about creating another boom-bust as seen in 2015, realizing the harm to confidence that comes from the bust is greater than the good from the ride up,” said Wang Zhuo, fund manager at Shanghai Zhuozhu Investment Management Co. “We are still staying in the sectors we already hold, which are largely undervalued, because we profit from the alpha more than the beta in the market.”    [FULL  STORY]