That’s about all you can say sometimes about Mainland markets in China.
Fresh off another good week that found some analysts fretting about whether the A-share rally might actually be counterproductive to the extent it makes Beijing think twice before adding more liquidity for fear of fueling another 2015-style bubble, Mainland shares surged to start the week.
The CSI 300 notched a 2.9% gain on Monday, closing near the highest levels since last May, while the Shanghai Composite logged a 2.5% advance.
The SHCOMP is now nearly 100 points above the key 3,000 level and is gunning for its 11th weekly gain in 12.
The ChiNext, often the poster child for froth during times of euphoric A-share sentiment, rose 2.7% on Monday. The gauge of small caps and tech shares is on track for a seventh consecutive weekly gain, a feat it hasn’t accomplished since the halcyon days of the 2015 bubble.
Again, the danger here is that Beijing loses control of the narrative. Chinese retail investors are a notoriously difficult bunch to rein in once they get loose and it looks like they’re loose.
Bloomberg’s Ye Xie, in an opinion note on Monday, called this a “decisive moment” for China. To wit:
Wary of repeating the epic boom-and-bust of 2014-2015, regulators are moving to slow things down. They reportedly instructed brokerages to minimize risks from margin lending and warned analysts to avoid inflammatory language. This could prove to be a decisive moment. In a market dominated by retail investors, momentum and sentiment trump fundamentals. (When Yi Huiman was appointed as the chairman of the China Securities Regulatory Commission in January, companies whose names share the same Chinese character as Yi all rallied.)
Right. The MSCI decision is bullish as is the prospect that a lasting Sino-US trade truce is attainable. Additionally, the NPC made it pretty clear that more stimulus is in the cards and that Beijing won’t “let” growth and key economic activity measures fall below “acceptable” ranges. The VAT cut, coming in April, is another bullish catalyst.
All of that said, we may be approaching another “mania” moment for the market, especially if retail investors get the idea that thanks to last year’s selloff, there’s still “value”.
For now, we’ll just leave you with a snapshot of P/Es and P/Bs for the CSI 300 and the MXCN with the takeaway being that A-shares are still a long way from being as rich as they were four years ago before it all fell apart.