Shanghai’s stock exchange is booming again, but for how long? Bloomberg is taking a pretty dim view of the sudden upswing for mainland China’s biggest financial centre.
The Shanghai stock exchange composite index was down for the year to date, until September. It’s now surging upwards, with a 1% climb today, leaving it an astonishing 28.45% ahead of its January open. It’s left the S&P 500 (up a mere 14.26%) in the dust.
The index is now back to a three-year high. It’s some way off a record levels, having peaked at over 6,000 before the global financial crisis hit a few years ago. Here’s a chart to put that in perspective:
But the average value of shares traded is back above ¥200 billion ($US32.58 billion, £20.63 billion) per day, according to Bloomberg, causing some fears for a correction.
“It’s a good chance we’re at a market top right now,” David Cui, the China strategist at Bank of America, who’s ranked No. 1 by Institutional Investor magazine, said by phone yesterday. “Based on the experience since the global financial crisis, surging volumes each time marked a temporary top for the market.”
Jumps in trading may signal market peaks because they reflect too much investor “euphoria” toward stocks, according to Cui.
There are endless indications that China’s economy is slowing even as Shanghai’s equities boom picks up. Growth has fallen from the double-digit levels that were common before the financial crisis, but not everyone is pessimistic. From Bloomberg again:
“There will still be more leeway to go for the market because the overall monetary policy has slightly changed to support growth,” said Kelvin Wong, a Hong Kong-based analyst at Bank Julius Baer & Co., which has about $US296 billion under management. “At least for the near term, the market should continue to edge up.”