Is Another Bubble Building In Chinese Shares?

By Glenn Dyer | More Articles by Glenn Dyer

For some as yet unfathomable reason, Chinese stockmarket investors have turned all bullish all of a sudden.

After rising 7% last week, China’s markets surged again on Monday with the Shanghai market up 5.7% alone to a new five year high. It’s up more than 9% for the year so far, a rare rise.

Hong Kong’s Hang Seng was up 4% despite continuing worries about China’s tightening grip on the region.

MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 1.6% on Monday to its highest since February.

Most markets had gained ground last week as economic data from June beat expectations, though the resurgence of coronavirus cases in the US continued to worry investors.

According to Reuters, Mizuho strategist Ken Cheung said in a note on Monday that the rising level of margin financing in mainland China, which was worth 22 trillion yuan ($US3.1 trillion) in June, double the amount in February, would remain a key factor in the direction of the onshore equities market.

“It appears that the margin financing will be the most important driver for a bullish A-share market,” he wrote in the research note.

The China Securities Journal wrote on Monday that China needed a bull market to help fund it a rapidly developing digital economy.

So is the sudden surge the result of some prodding by the government? Could be. Certainly hong Kong’s big rise on Monday looked odd.

Asia now has COVID-19 under control, especially compared to the surging case numbers in India, Russia, the US, and Brazil.

In the first five days of July alone, 17 states have reported record increases in new cases of COVID-19, which has infected nearly 3 million Americans and killed about 130,000, according to a Reuters tally.

“It is very clear that the U.S. never got the COVID outbreak under control the way that other countries did. By reopening the economy too soon, we have seen a frightening increase in the pace of new cases,” said Robert Rennie, Westpac’s head of financial market strategy in a note on Monday.

US markets weren’t worrying – futures trading had them up sharply last night.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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