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Bullish China breaks through 5,000 barrier
2007-08-23
A man stands in front of an electronic board at a stock exchange in Changchun, northeast China's Jilin province July 25, 2007. China's main stock index closed up 2.7 percent on the day, led by banks and other large-caps and buoyed by investor anticipation of better-than-expected corporate interim earnings. |
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China's stock market closed above the 5,000 points barrier for the first time on Thursday as mainland investors continued to pay little attention to the uncertainty that has affected global capital markets in recent weeks. The Shanghai Composite index rose 1 per cent to close at 5,032.5 points on predictions of strong increases in second half earnings, continuing a rally that has seen share prices rise 88 per cent so far this year. The market has continued to rise this week in spite of an increase in interest rates and new rules to allow Chinese citizens to invest money overseas - both measures that might have been expected to damp enthusiasm for mainland shares. The index has risen 12.6 per cent since the start of August and has been largely unaffected by the credit concerns that have hit most other markets, including much of the rest of Asia. The surge in August has been part of a remarkable 18-month long rally that saw the market break the 2,000 point level last November and only breach 4,000 points in May. Mainland shares are now trading at nearly 60 times 2006 earnings and the companies that are listed in both Shanghai and Hong Kong are on average 50 per cent more expensive on the mainland market. Although many overseas analysts have claimed for several months that the Chinese market is overvalued and creating a potentially dangerous bubble, a number of mainland analysts believe the market could continue to rise much further because of the huge pool of bank deposits that could potentially be put into equities. "We expect the market can reach 6,000 points in the second half of 2007," said Zhang Yidong, analyst at Industrial Securities in Shanghai. "The market will continue to rise, the upward trend is still quite clear," said Chen Huiqin at Huatai Securities in Wuhan. "There is just too much money in the market, especially in the hands of the fund managers, who have no choice but to keep buying stocks and building up their positions." Shares have continued to rise this week in spite of the decision, announced on Monday, to allow individual investors to directly buy offshore securities for the first time, through a pilot programme that will permit them to purchase shares in Hong Kong from next week. JPMorgan Chase predicts that the gradual removal of barriers to overseas investment will lead to an outflow of up to $200bn. However, mainland investors haveso far been reluctant to pursue overseas investments because of the booming domestic market and the 5 per cent annual appreciation of the Chinese currency. According to Zhong Hua at Changjiang Securities in Shanghai: "The continuing rise in the mainland market is the result of the high level of liquidity. The potential risks include a sharp slow-down in the US and government measures to make stocks less attractive, but in the near term we are optimistic." Citic Securities on Thursday launched a $3.3bn issue, the latest to take advantage of the buoyant markets.
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