China Stocks Are Sending Warning Signs on Liquidity-Driven Rally

Red flags are emerging in China’s onshore stocks, following a surprise rally mostly driven by liquidity rather than improved economic fundamentals.

The bull run extended on Monday, with turnover in the world’s second-largest equities market hitting 3.1 trillion yuan ($433 billion), the second highest ever. The CSI 300 Index, up for a fourth session in a row, is among Asia’s top performers this month. However, measures from valuations to technical indicators and margin financing are beginning to flash warnings.