Shanghai Composite Index Tops 5,000 for First Time Since 2008

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The Shanghai Composite Index climbed above 5,000 points for the first time in seven years, the latest milestone in a world-beating rally.

China’s benchmark gauge added 1.5 percent to 5,023.09 at the close, led by materials and industrial companies, with trading volume 37 percent above the 30-day average. The gauge advanced 8.9 percent this week, the most since December, widening the premium over Hong Kong-listed mainland stocks to 36 percent, the most since October 2011. Price swings are also widening, with the Shanghai index’s 100-day volatility measure at the highest level in more than five years.

“Volatility will probably increase,” said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co. “The higher the index moves, we’ll see more investors take short-term profits.”

Record growth in margin debt helped add more than $4 trillion to the value of mainland Chinese shares this year as the Shanghai Composite surged 55 percent, the most among the world’s major benchmarks. While bulls say gains are fueled by confidence that President Xi Jinping will succeed in turning the nation from an export-led manufacturer into a consumer-spending powerhouse, bears point to valuations as evidence of a bubble.

The Shanghai index is valued at 25 times reported earnings, the most expensive relative to the MSCI All-Country World Index in seven years. The smaller Shenzhen Composite Index trades at a multiple of 75. The MSCI gauge is valued at 14.4 times.

Margin traders increased holdings of shares purchased with borrowed money on Thursday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising by 0.7 percent to a record 1.41 trillion yuan ($227 billion).

A-Share Premium

The CSI 300 Index added 1 percent. Hong Kong’s Hang Seng China Enterprises Index fell 1.5 percent, capping a 1.4 percent weekly loss. The Hang Seng Index declined 1.1 percent. The Hang Seng China AH Premium Index rose 8.9 percent this week, the largest increase since September 2011.

Eight out of 10 industry groups on the CSI 300 index rose, with measures of material and industrial companies gaining at least 3.2 percent. Aluminum Corp. of China Ltd., the nation’s biggest producer, advanced 4.1 percent, while China Railway Group Ltd., the nation’s biggest construction company by total assets, and China Railway Construction Corp. both surged by the 10 percent daily limit.

IPO Demand

The ChiNext index of technology-heavy smaller companies lost 1.5 percent as Shanghai Kingstar Winning Software Co. tumbled 6.4 percent and Hand Enterprise Solutions Co. slid 6.1 percent. The index still jumped 8 percent this week, an eighth straight gain.

In a sign of investor demand for equities, China National Nuclear Power Co., the country’s second-biggest atomic power operator, drew $273 billion in bids this week for its $2 billion initial public offering.

Shares of the 144 firms that went public this year have jumped an average 539 percent so far, including a 44 percent increase on the first day of trading, the maximum amount allowed by local bourses, according to data compiled by Bloomberg.

China releases a new set of May economic data next week. Trade data are due June 8, followed by a report on consumer prices the following day. Exports probably dropped 4.4 percent from a year earlier, while inflation may have slowed to 1.3 percent, according to the median estimates of Bloomberg surveys.