Mon, Jun 08, 2015 - Page 14 News List

Chinese stocks edge closer to US$10tn

FORGING AHEAD:The surge in the stocks — which reached US$9.7tn on Friday — is a ‘big surprise,’ one economist said, as last year they were among the world’s cheapest

Bloomberg

The value of Chinese stocks is poised to reach US$10 trillion after a world-beating rally added virtually the equivalent of Japan’s equities market this year.

The Shanghai Composite Index climbed 8.9 percent this week, its biggest jump this year, to close above 5,000 for the first time since 2008.

Companies with a primary listing in China were valued at US$9.7 trillion at the end of trading on Friday, an increase of US$4.8 trillion since the end of last year, according to data compiled by Bloomberg.

Japan’s stock market is valued at US$5 trillion, while the US is valued at almost US$25 trillion.

The Shanghai measure has jumped 146 percent in the past 12 months, the most among major global benchmark indexes, spurred by surging participation among individual Chinese investors and record margin debt.

Worsening economic data has only fueled bets the government will step up stimulus efforts.

The surge in China’s stocks is a “big surprise” given they were among the cheapest in the world last year, Mizuho Securities Asia Ltd chief Asia economist Shen Jianguang (沈建光) said.

“The question we’d like to ask is whether this is based on a pure bubble or whether the economy can catch up,” Shen said.

The Shanghai Composite trades at about 25 times reported earnings. Eleven months ago, the gauge was valued at approximately 9.6 times, the lowest since at least 1998. The Shenzhen Composite, the smaller of China’s two exchanges, trades at 75 times profit, five times the multiple of the MSCI Emerging Markets Index.

Bloomberg’s monthly GDP tracker for China is near the lowest since 2009, and retail sales grew the slowest in April since 2006, while fixed asset investment rose that month by the least in almost 15 years.

While the rally benefits the Chinese Communist Party by helping companies reduce debt levels through the sale of new shares, deepening price swings are challenging the competence of authorities to maintain financial stability in the face of a record 1.41 trillion yuan (US$227.3 billion) of margin debt.

The rally in mainland Chinese stocks has widened their premium over Hong Kong-listed peers to 36 percent, the most since 2011.

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