SHANGHAI/HONG KONG: Animal spirits are back in China’s stock market as investors are fleeing equities, buoyed by Beijing’s policy gains and fearful of missing out on what some see as a rally of historic intensity .
Brokerages are swamped with retail clients and a glut of orders is jamming the trading system as investors move money out of bonds and deposits and into stocks, causing an explosion in stock turnover and sending yields soaring.
“Deposit rates are too low, and real estate investment is no longer safe,” said Darren Wang, a 30-year-old office worker who started buying stocks using borrowed money.
“There is no other way to get rich than doubling down on stocks. The market craze you are seeing this time may be unprecedented.”
Stocks have endured three years of disappointment as economic activity struggles to return to pre-pandemic boom, while a debt crisis among property developers continues to plague the markets.
That disappointment suddenly turned to excitement last week as the blue-chip CSI300 Index The stock rose 16% in its best week since 1998, after the government announced stimulus including cutting interest rates and a $114 billion war chest to boost share prices.
Many policies have yet to be implemented and there is no guarantee that they will fundamentally improve business conditions or cure economic ills, including the long-standing wealth crisis and anemic consumption. Still, investors said they are chasing the money.
“Life has been hard for so long and it’s finally time to make some money,” said Wen Hao, a manager at a tech startup in Hangzhou who bought energy stocks on Monday.
they drew parallels Bull Run in 2015 when Shanghai’s stock benchmark doubled in just six months, citing “huge amounts of state-backed money flowing into the stock market”.
The central bank last week unveiled a swap program initially worth 500 billion yuan ($71.30 billion) to finance stock purchases by brokers, funds and insurers. It will also create a 300 billion yuan re-lending facility to fund share buy-backs by listed companies. There are preparations to expand both the schemes.
market boom
China’s CSI300 index rose more than 8% on Monday, extending last week’s 16% jump. Shanghai shares rose more than 7%, while Shenzhen shares rose more than 10%, with a combined turnover of 2.6 trillion yuan, surpassing the surge from a decade ago.
“The 2014-15 boom was funded by illegal margin financing. This time, the central bank is offering leverage,” said a hedge fund manager who was not authorized to speak to the media. Refused to reveal his identity.
“Investors are increasingly investing in stocks because there is state support,” the manager said. He said the difficulty in making macroeconomic forecasts means the rally is more about liquidity and mood than fundamental conditions or corporate prospects.
Signaling official approval for the rally, China Securities Journal said in an editorial on Monday that reviving stocks and boosting investor confidence would help the country’s economic recovery, breaking the vicious cycle of investment and damaged sentiment. .
Brokerages across the country, which were quiet just a week ago, are now filled with investors eager to open accounts or borrow money to trade. Such was the demand that clearing services were unusually open over the weekend to clear new accounts.
An internal notice seen by Reuters showed that Guotai Junnan Securities has arranged for additional staff at branches to handle increased account opening requests and cover non-working hours for the upcoming National Day Gold Week holidays .
Guotai Junan Securities did not immediately respond to Reuters’ request for comment.
Xiyun Zhong, client manager of the Suzhou branch of Citi Brokerage, said that the margin financing business has suddenly become busier.
Another manager of a Citi outlet in Shanghai also described an increase in business activity.
The manager said, “More people are opening stock accounts; more questions about margin financing… We’re many times busier than before.”
Transactions on Shanghai’s stock exchange were delayed on Friday due to a sudden surge in buying orders. The exchange conducted tests over the weekend to ensure network reliability.
ROTATION
In a sign that money is moving out of safe assets, China’s 30-year Treasury bond futures hit a two-month low on Monday after falling 3.6% last week – their worst week ever. .
“Epic-scale wealth migration is coming – trillions are shifting from bond funds, wealth management and other fixed income products to equities,” Zhao Jian, head of Atlantis Finance Research Institute, wrote in a client note on Sunday.
The three-year bear market has fueled millions of short-term investors yearning to get their money back, so “the bullish race will continue with some good corrections,” Zhao said, predicting that many will withdraw their funds. Will be out of pocket. The market inevitably changes.
Wu Jie, a 48-year-old veteran individual trader, said he felt bewildered by the sudden change in mood.
“The economy is still in bad shape,” said Wu, whose stock position is light at the moment.
“But if you look at the trading volume, the bullishness is likely to continue. I have cash ready, and I’m waiting for a big correction so I can get in on it.” ($1 = 7.0125 Chinese yuan renminbi)
