A rally in Chinese equities steepened Monday as bumper credit figures for January added to signs of increased stimulus.
The Shanghai Composite Index jumped 2.7 percent by the close, taking its rebound since a Jan. 3 low to 12 percent, as turnover on mainland exchanges reached a 10-month high. The small cap ChiNext index in Shenzhen, typically the most speculative part of the market, soared more than 4 percent. The surge weighed on government bonds, with the 10-year yield climbing the most in two months.
The nation’s equities, which were the world’s worst performing in 2018, are starting to take off as the new securities regulator eases curbs on trading and an economic slowdown spurs monetary easing. In a sign of how broad the rally has been, the relative strength of four major indexes have all climbed above 70 — a level that signals to some traders an asset may be overheating. The last time that happened was May 2015, when the equity market was in a bubble.
Optimism that trade talks with the U.S. will bear fruit is adding to the risk-on sentiment, with further discussions scheduled for this week in Washington.
“The only two things that investors are looking forward to seeing are easing trade tensions between China and the U.S. and a more proactive policy stance at home,” said Shen Zhengyang, a Shanghai-based analyst with Northeast Securities Co. “Now that there are positive signs on their biggest concerns, the market will definitely trend up.”
Annual policy meetings by Chinese authorities in March may provide further fuel for the rally, Jefferies Hong Kong Ltd.’s Sean Darby wrote, saying it’s too early to sell stocks.
Brokerages and energy producers were among the best performers Monday, with industry gauges up at least 3.6 percent. Macau casino stocks rebounded from a bruising Friday, when they fell on concerns the Chinese government’s focus on illegal lending would hurt gaming revenue. JPMorgan said that reaction in stocks was perhaps overdone. MGM China Holdings Ltd. led casino gains, rising as much as 6.7 percent, its biggest intraday jump since Dec. 3.
Turnover on mainland exchanges rose to 547 billion yuan ($81 billion), the highest since April 2018. The Shanghai Composite closed at 2,754 points, above the median estimate of 2,750 that 22 analysts and fund managers saw the index at by end-March. The gains in the Shanghai and Shenzhen measures were the biggest this year.
