In the 15 days they’ve been open in February, China’s financial markets have delivered spectacular returns for equity investors. The tech-heavy ChiNext stands out with a 25% surge, it’s best month on record, with all 100 members rising. The Shanghai Composite has added 14%, better than any other major equity index worldwide and its widest outperformance relative to global stocks since 2015.
Optimism over China’s relationship with the US and a stable yuan are helping. But the extreme rally onshore speaks to a sudden change in sentiment in China, where investors have cheered the new securities regulator’s more benevolent take on financial risk. Top policy makers are endorsing a focus on economic growth, prompting speculation they’ll at least pause — if not reverse — a crackdown on leverage.
With the ChiNext, Shanghai Composite, Shenzhen Composite and CSI 300 Index all entering bull markets, daily trading turnover in the world’s second-largest equity market climbed above $150 bn to heights not seen since 2015. Foreign investors have also been piling in at a record clip. The stellar performance has impacted the bond market, where the rally in Chinese government debt is faltering as investors redirect funds to stocks.
Industry-specific developments have fueled rallies in sectors from telecommunications — 5G expansion and a huge order by China Mobile Ltd. for fiber-optic cable — to agriculture, where stocks have surged as African swine fever drives up pork prices. Even after a February 18 report that African swine fever was found in some of Sanquan Food Co.’s dumplings, the company is still on track for a 3.5% gain this month.