Citic Jumps as Brokerages Soar After Record Shanghai Turnover

Citic Securities Co. headed for an all-time high as record turnover on the Shanghai bourse fueled a rally for Hong Kong-listed brokerages.

Citic surged 11 percent to HK$26.50 as of 1:52 p.m. in Hong Kong. China Galaxy Securities Co. jumped 9.7 percent to HK$9.41, also poised for a record close. The value of shares traded yesterday in Shanghai surged to 529.4 billion yuan ($86.1 billion), the most in Bloomberg data stretching back to 2005. Turnover on Hong Kong’s bourse reached HK$123.2 billion ($15.9 billion), the highest since February 2013, exchange data show.

“The brokers are the most obvious, leveraged plays for China entering a bull market and increase in exchange volumes,” said David Welch, head of equity sales trading at Reorient Group Ltd. in Hong Kong. “Plus there’s a pick up in general market activities like IPOs. It’s all very positive for the brokers.”

China’s recent interest-rate cut has added to optimism for more stimulus to bolster growth. Morgan Stanley sees potential for an “ultra-bull” rally where share prices double in 18 months. Goldman Sachs Group Inc. yesterday raised its target price on Citic to HK$27.70 from HK$17.30, while boosting Haitong Securities Co. to HK$23.40 from HK$14.20. The brokerage also upgraded China Galaxy to buy.

The Shanghai Composite Index today soared 2.8 percent to 2,856.92, extending a three-year high as it outperforms all 92 of the world’s other equity benchmarks over the past month. The Chinese index may rise to 4,000-5,000 next year, according to a 21st Century Business Herald report citing Yin Zhongli, vice director at the Chinese Academy of Social Sciences’s financial market research office.

Overheating Signs

Mainland investors are opening stock accounts at the fastest pace in three years. Chinese initial public offerings are expected to rise to 400-500 in 2015 from 100 this year, according to UBS AG.

Citic’s relative strength index rose to 82 today, while China Galaxy’s climbed to 81. Some traders interpret readings above 70 as a sign securities are overbought.

“I think some short-term profit-taking is in order,” said Reorient’s Welch. “We are very bullish on China for the next two to three years and think this rally in the Shanghai Composite Index and brokers is the start of a multi-year rally.”

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