If you thought last week’s rally in mainland Chinese shares was impressive, it turns out you hadn’t seen anything yet.
The CSI 300 rose 5.7% on Monday, in a raucous rally that very nearly matched the entirety of last week’s gains. The Shanghai Composite had its best day in four years.
The figure (below) puts the one-day surge in context. If Monday were a week, it would have been the second best week of 2020.
There are a couple of factors at play here, not least of which was a front-page Op-Ed in Securities Times calling for a “healthy” bull market or, if you prefer the translation, “healthy cattle”.
It would be virtually impossible for me to add anything in the way of comedic value beyond what Google translate produces when you run the editorial through. Below is a representative example.
The A-share market surged last week, with the Shanghai Composite Index breaking through 3100 points, a record high of nearly 15 months. In the post-epidemic era where the global economic and trade landscape is changing, the digital economy is developing rapidly, and the currency easing is rising and falling, the “healthy cattle” in the capital market will become an important starting point for nurturing new opportunities in the crisis and opening up new situations in the face of changes. Benefiting from the fact that the economy is basically oriented to the good trend, the deepening of the capital market, the accelerated release of system dividends, and the continuous influx of incremental funds, A-shares are necessary, conditional, and have the basis to step into a “healthy cow.”
That’s right, folks. There is a sound rationale for A-shares “stepping into a healthy cow”.
And step they did on Monday.
The one-day gain was the largest since February of 2019, and the second-largest since the summer of 2015, when the country’s equity bubble collapsed in spectacular fashion.
“Chinese social media exploded with searches for the term ‘open a stock account’, with bullish sentiment also lifting the yuan”, Bloomberg notes.
That’s also reminiscent of 2015, when China’s hordes of retail investors (many of whom lacked even a rudimentary education) plowed money into A-shares ahead of a dramatic wipeout.
All three of the mainland benchmarks are well into overbought territory. At ~89, the CSI 300’s RSI is the highest since the fourth quarter of 2014.
The Securities Times piece reads more like something you’d hear from a CNBC pundit than a Communist Party media mouthpiece.
“We firmly believe that China’s economy will continue to improve for the long term”, the editorial goes on to declare. “We look forward to the wealth effect of the capital market, which will bloom for a long time and will not be short-lived”.
At least some analysts attributed the recent run to short-covering from systematic trend (i.e., CTAs).
One thing is for sure, mainland shares are now dusting the S&P. That has the potential to continue in the event the virus situation in the US continues to deteriorate, necessitating more partial lockdowns, while the Party badgers China’s command economy out of the first downturn in at least three decades.
The pace of the gains is breathtaking. Shares are up 14% in five days, a surge the likes of which hasn’t been seen since the bubble. Chinese bonds have been routed of late, and 10-year yields jumped the most in years on Monday, extending the selloff.
Bloomberg flagged daily turnover in excess of 1.5 trillion yuan, a blistering pace of activity not witnessed in half a decade. That suggests retail investors are excited.
Of course, you’d think the authorities in Beijing would be cautious about not stoking the kind of euphoria that precipitated the collapse in 2015, when the market was halted and the powers that be resorted to arrests to stanch the bleeding.