China Stock Boom Still Dwarfed by Economy Keeps HSBC Bullish

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For all the concern over an equity bubble in China, the nation’s stock-market capitalization is still about 40 percent smaller than it was in 2007 when measured against the size of the economy.

The $7.3 trillion value of companies with primary listings in China compares with the nation’s estimated $10.4 trillion gross domestic product in 2014, according to data compiled by Bloomberg and the International Monetary Fund. The 70 percent value-to-GDP ratio compares with 110 percent at the height of China’s equity boom eight years ago and the current level of 143 percent in the U.S.

China’s stock market will grow to $10 trillion by 2020 through a combination of rising equity prices and a tripling in the pace of initial public offerings, according to HSBC Holdings Plc. Global demand for the nation’s shares will increase as China opens up its capital markets to foreigners and reduces the government’s role in setting IPO prices, said Steven Sun, HSBC’s head of China equity strategy.

For “global investors, obviously it’s time to get into China,” Sun said by e-mail.

The 94 percent surge in China’s Shanghai Composite Index over the past 12 months has prompted warnings from investors including Templeton Emerging Markets Group’s Mark Mobius that prices are poised for a retreat. Valuations, though, are still well below previous highs. The gauge trades at 20 times reported earnings, versus a multiple of 49 in October 2007, according to data compiled by Bloomberg.

China’s GDP rose 7 percent in the three months through March from a year earlier, the statistics bureau said in Beijing Wednesday, matching the median estimate in a Bloomberg survey of analysts.

Chinese leaders are targeting that level of expansion for the world’s second-largest economy this year, which would be the weakest pace since 1990. That’s still faster than the IMF’s 4.3 percent estimated growth rate for global emerging-market economies.

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