Stock indexes in China surged Monday for their biggest one-day gain in half a decade after a state-owned publication essentially said that it is a good time to buy stocks. The jump accelerates a multiday rally that has made Chinese stock indexes among the best performers in 2020.
The Shanghai Composite—which includes all stocks on the Shanghai Stock Exchange—rose 180 points, or 5.7%, on Monday, bringing its gain over the past five trading days to 12.5%. It closed at just under 3,333 points, its highest level since February 2018.
The CSI 300 Index, which comprises the largest stocks on the Shanghai Stock Exchange and the Shenzhen Stock Exchange, also jumped 5.7% to stretch its five-day gain to nearly 15%. The Xtrackers Harvest CSI 300 China A-Shares ETF (ticker: ASHR) rose 11.2% in the U.S., while the SPDR S&P China ETF (GXC)—which tracks yet another index, the S&P China BMI—closed up 7.6%.
China’s large-cap and marketwide stock indexes are now up solidly on the year, following a coronavirus-induced crash, steady rise since March, and recent days’ surge. The Shanghai Composite has climbed about 9% since the start of 2020, while the CSI 300 and the S&P China ETF have each added over 14%.
The latest leg of the rebound came thanks to an editorial on Monday in the China Securities Journal that called for a “healthy bull market,” which investors evidently took as a signal that the central government wants to make that happen. It is like the U.S. Federal Reserve saying that stocks are cheap, wrote Barron’s Al Root on Monday. The fact that expectations and rumors about coming Chinese fiscal stimulus have been swirling this year only added to Monday’s pop.
In a report on Monday, Capital Economics senior markets economist Oliver Jones noted that there are good reasons to not count out a continued bull market in Chinese stocks. For starters, the CSI 300 and other Chinese indexes are prone to bouts of volatility, and the moves investors have seen this year aren’t particularly large by historical standards. In just nine months ending in mid-2015, the CSI 300 more than doubled. A bubble in 2006 and 2007 saw the index increase fivefold. The current rally is small in comparison.
The economic backdrop in China appears to be improving quickly from disruptive shut downs earlier this year. That likely bodes well for companies’ earnings relative to those in the rest of the world. But the fundamentals haven’t mattered much in past bubbly periods on Chinese stock markets, writes Jones. As with the start of the 2006-2007 and 2014-2015 rallies, trading volumes have jumped in recent days as Chinese indexes have surged.
“While trading volumes in the U.S. have generally fallen back since March’s sell-off, in China they have surged to their highest since the 2015 bubble,” Jones wrote. “In another echo of 2015, the A/H premium, the gap between the share prices of dual-listed firms on the relatively closed-off mainland market and on the more open Hong Kong exchange, has jumped over the past month. Mainland listings now trade at a premium of around one third.”
That could be a sign of Chinese retail investors getting into the stock market, including those who might have taken a cue from Monday’s editorial. Hong Kong’s Hang Seng Index—which sees greater trading from international investors—rose 3.8% on Monday and is down 6.6% in 2020.
In the U.S., the Dow Jones Industrial Average is down 7.9% in 2020 and the S&P 500 has lost 1.6%. The Nasdaq Composite, meanwhile, is up 16.3% to record highs.
Write to Nicholas Jasinski at email@example.com