Mon, Jun 15, 2015 - Page 15 News List

China’s stock market value surpasses US$10 trillion

STAMPEDE?The Shanghai Composite Index has rallied 152 percent in the past 12 months and trades at about 26 times reported earnings, Bloomberg data showed

Bloomberg

The value of Chinese stocks rose above US$10 trillion for the first time, the latest milestone for the nation’s world-beating rally.

Companies with a primary listing in China are valued at US$10.05 trillion, an increase of US$6.7 trillion in 12 months, according to data compiled by Bloomberg. The gain alone is more than the US$5 trillion size of Japan’s entire stock market.

The US market is the biggest globally at almost US$25 trillion.

No other stock market has grown as much in US dollar terms over a 12-month period, as Chinese individuals piled into the nation’s equities using borrowed funds to bet that gains would continue. Valuations are now the highest in five years and margin debt has climbed to a record, all while the economy is mired in its weakest expansion since 1990.

Outside of China, investors are not showing the same enthusiasm toward the nation’s equities. Funds pulled a net US$6.8 billion out of Chinese stock funds in the seven days through Wednesday last week, Barclays PLC said in a research note, citing EPFR Global data.

Dual-listed Chinese shares cost more than twice as much on average on mainland exchanges than they do in Hong Kong.

SHANGHAI INDEX

MSCI Inc’s decision on Tuesday last week against including China’s equities in its benchmark gauge had little impact on the Shanghai Composite Index, which climbed 2.9 percent last week to its highest level since January 2008.

Foreigners are limited by quotas when buying shares in Shanghai via an exchange link with Hong Kong, while similar access to Shenzhen-traded stocks is likely to start this year, the Hong Kong bourse has said.

The Shanghai gauge has rallied 152 percent in the past 12 months, the most among global benchmark indices tracked by Bloomberg, and trades at about 26 times reported earnings.

Less than a year ago, the gauge was valued at about 9.6 times, the lowest since at least 1998.

The Shenzhen Composite Index, tracking stocks on the smaller of China’s exchanges, trades at 77 times profits after surging 194 percent.

STIMULUS OUTLOOK

Gains have been fueled by speculation that Beijing will take more steps to boost growth.

HSBC Holdings PLC predicts a cut — by 50 basis points — in lenders’ required reserves in the “coming weeks,” while Societe Generale AG said one more is needed before the end of the month.

That would be the third reduction this year.

While the latest data showed China’s economy stabilizing, indicators from retail sales to industrial output are still growing near the slowest pace in years and trade remains weak. Exports slumped last month and imports declined for a seventh month.

Profits in the Chinese gauge trailed analyst estimates by the most in six years last year, as economic growth slowed to 7.4 percent, the slowest pace in more than two decades.

Chinese investors’ fervor for stocks remains undaunted, with a record 4.4 million trading accounts opened in the final week of last month, and margin debt on the Shanghai exchange rose to a record 1.44 trillion yuan (US$232 billion) on Thursday.

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