Economics

China's Stock Rally May Run Out of Steam Next Year

Analyst who called boom and bust sees rotation into small caps
Shanghai Composite to trade between 2,800-3,900, Hao Hong says

A man sits in front of an electronic board displaying share prices at a securities brokerage in Beijing, China, on Monday, March 7, 2016. Chinese small-cap stocks rallied after Premier Li Keqiang failed to mention a planned shift to a more market-based system for initial public offerings, a reform seen luring funds from existing equities.
Photographer: Qilai Shen/Bloomberg

Provide news feedback or report an error

Confidential tip?

Send a tip to our reporters

Site feedback:

Take our Survey

By Robin Ganguly

December 4, 2017 at 3:41 AM UTC

Updated on

December 4, 2017 at 10:21 AM UTC

This article is for subscribers only.

China’s benchmark stock index will trade weaker than current levels for much of next year as an official deleveraging campaign crimps credit growth and keeps interest rates elevated, according to Bocom International Holdings Co.’s Hao Hong.

The Shanghai Composite Index will move between 2,800 and 3,900 for the next 12 months, with brief episodes of volatility driven by changes in liquidity conditions, Hong wrote in a research note to clients. That compares with a current level of around 3,300. Large cap stocks have surged in 2017, and their valuations are approaching extreme levels, he added, predicting a “zig-zag” rotation into smaller peers.