China’s stock market climbed to levels last seen before the global financial crisis in 2008, extending its world-beating rally as investors bet monetary stimulus will revive an economy beset by four years of slowing growth.
The Shanghai Composite Index advanced 1.6 percent to 3,502.85 at the close, the highest level since May 2008, as airline and rail companies jumped. The gauge has risen 73 percent during the past 12 months, recovering from a retreat since August 2009 that had wiped out more value than any other equity market worldwide.
The turnaround, fueled by record margin debt and increased access for international investors, reflects growing confidence that President Xi Jinping will succeed in using lower borrowing costs to smooth the nation’s transition from an export-led manufacturer into a consumer-spending powerhouse. While the Shanghai market’s stimulus-driven rally of 2009 ended badly for investors, Morgan Stanley says this bull run has further to go as earnings growth accelerates.
“We still see significant upside,” Jonathan Garner, the Hong Kong-based head of Asia and emerging-markets strategy at Morgan Stanley, said in a phone interview on March 16. “The Chinese economy is successfully transitioning to consumer and services driven growth.”
The Shanghai Composite may rise to as high as 5,100 this year, Garner said. He has overweight recommendations on “New Economy” stocks in the technology, health care and consumer industries.
The CSI 300 Index rose 1.4 percent. Hong Kong’s Hang Seng China Enterprises Index added 0.2 percent, while the Hang Seng Index fell 0.2 percent. The Hang Seng China AH Premium Index rose 1.2 percent to 130.73, the highest level since Jan. 16. Shanghai Composite trading volumes were 86 percent above the 30-day average.
A gauge of industrial companies in the CSI 300 jumped 2.9 percent, the most among 10 groups.
Air China Ltd. and China Southern Airlines Co. rallied by the 10 percent daily limit. Carriers surged on speculation falling oil prices will boost earnings, said Steven Leung, director of institutional sales at UOB Kay Hian Ltd. Crude fell to a six-year low in New York.
China Railway Construction Corp. and China Railway Group gained at least 5 percent after the China Economic Weekly reported the government is studying a merger.
Premier Li Keqiang pledged during this month’s annual legislative meetings to encourage the development of fledgling industries, allow more private investment in state-owned enterprises and give market forces a bigger role in the economy. Policy makers will take action if growth drifts toward the lower limit of its range and cuts into employment or wages, Li said at the close of the National People’s Congress on March 15.
“It seems that there is a bottom line and the government will make sure growth will not go below 7 percent,” Hao Hong, the chief China strategist at Bocom International Holdings Co. in Hong Kong, said in an e-mail on March 16.
Mainland investors opened 662,000 new stock accounts in the week ended March 6, the most since December, when the Shanghai gauge jumped 21 percent. The outstanding value of margin trading, or shares purchased with borrowed money, on the Shanghai Stock Exchange rose to a record 880.6 billion yuan ($140.6 billion) on March 13. Foreign investors have bought a net 116 billion yuan of mainland shares through the Shanghai-Hong Kong exchange link since the program began in November.
The Shanghai stock index is valued at 13 times estimated earnings for the next 12 months, versus the five-year average of 10 and a multiple of 17 for the Standard & Poor’s 500 Index. The Chinese market’s $5.8 trillion value makes it the second-largest worldwide after the U.S., which has a market capitalization of $24.5 trillion.
— With assistance by Shidong Zhang, and Kyoungwha Kim