Shanghai Shares Detach From Economic Reality as State Funds Buy

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In most stock markets, data showing weak economic growth is bad news for investors.

In China on Friday, it was just the opposite -- the Shanghai Composite Index rose as much as 1.5 percent after a private gauge of Chinese manufacturing unexpectedly fell to a 15-month low. It’s the latest sign of how divorced the nation’s $7.5 trillion market has become from economic fundamentals amid unprecedented government intervention to prop up share prices. The gauge erased gains toward the end of trading to close 1.3 percent lower.

“There is a clear detachment between fundamentals and the movement of stocks on the mainland,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. in Shanghai. “The poor factory data should have had a bigger impact.”

Prospects for economic expansion and corporate earnings have become almost irrelevant to Chinese equity investors after policy makers ordered government-linked funds to buy shares and gave a state-run finance firm access to more than $480 billion to support the market. The Shanghai Composite has rallied 16 percent from its July 8 low, leaving the gauge near the start of a new bull market.

The earlier mainland rally on Friday clashed with the reaction from offshore equity markets, with Hong Kong’s Hang Seng China Enterprises Index sinking 1.3 percent and the MSCI Asia Pacific Index losing 0.8 percent. The Australian dollar and copper prices, both seen as proxies for Chinese growth expectations, retreated at least 0.2 percent.

— With assistance by Shidong Zhang

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