Aside from the inflation fuelled Venezuela Stock Market Index, China’s Shanghai Composite is the top performing stock market in the world so far in 2015. The Shanghai Composite is up 58% year-to-date, and 151% year-over-year.
However, if the bull market that occurred from July 2005 until October 2007 is any indication, the rally is just getting started. Check out this chart from US Funds’ Frank Holmes.
This time is a little different. In the 2005-2007 rally, China’s economy was growing at an annualized rate of more than 10%. Now, the People’s Bank of China is forecasting growth of 7.0% in 2015.
However, this slowdown might actually be a bullish sign for Chinese stocks. As US Global Investors’ Frank Holmes points out, the easing cycles by the People’s Bank of China “have historically coincided with strong market rallies in the MSCI China Index, a proxy for China H-shares, or stocks of Chinese companies listed on foreign exchanges.”
The PBOC’s benchmark interest rate currently sits at a record low 5.1%, and there is increasing speculation it could be headed lower.
Don’t forget, this is the Year of the Goat, and the Chinese stock market has been exhibiting a “herd-like” behaviour.