July 3, 2020 / 7:52 AM / a month ago

Milestones and markers flash bullish signals for Chinese stocks

SHANGHAI, July 3 (Reuters) - Surging volumes, massive margin borrowings and a deluge of foreign money this week in China’s stock markets are pointing to another sizable run-up in share prices in the second half of 2020.

Sell-side analysts are bullish on the mainland stock markets, and expect China to recover faster and better from the coronavirus pandemic than most major countries still battling second wave infections and lockdowns.

This week’s trading numbers show real money is betting in the same direction. Turnover on the mainland’s Shanghai and Shenzhen exchanges exceeded 1 trillion yuan ($141.56 billion) for the first time in four months on Thursday, and again on Friday.

The amount of outstanding margin loans used to buy stocks reached 1.15 trillion yuan, the highest level since end-2015.

Foreign money is also pouring into Chinese stocks. Trading turnover hit a record 149.2 billion yuan on Thursday under the cross-border Stock Connect, while foreign ownership in a growing number of China-listed stocks, including Suofeiya Home Collection and Hangzhou Tigermed, is approaching the 30% regulatory ceiling.

The Chinese stock market is “a crunching dragon gathering strength for a bull run”, Tan Wenhui, an analyst at Yeukai Securities said in mid-year strategy report, adding Chinese investors have become immune to worsening Sino-U.S. relations.

China’s main Shanghai Composite index is up 16.5% from its March lows. The blue-chip CSI300 Index ended Friday at five-year highs and registered its biggest weekly gain since October, 2015.

The Nasdaq-style ChiNext board has surged 37% since early February.

Investors say the burst of money is driven by loose monetary policies, hopes for sustained economic recovery, and confidence in the Chinese government’s ability to crush any resurgence in the virus.

Data released by fund consultancy Z-Ben Advisors this week shows intensive fund-raising by mutual funds will further fuel stock-buying. Chinese mutual fund managers raised 157 billion yuan in June for equity and balanced funds - which invest in both stocks and bonds - the highest monthly fundraising in five years, according to Z-Ben.

“Chinese equities have proved to be the most resilient market during this crisis, and are backed by steady work resumption and government stimulus policies,” said Richard Pan, fund manager at China Asset Management Co.

But some caution that further gains in China stocks need to be justified by more solid signs of recovery.

“Foreign money continues to flow into China, showing global investors have faith in China’s economic recovery,” said Luo Di, Shanghai-based fund manager at UBS Asset Management.

“But further rise of the market, especially big-caps, needs propulsion from improvement in corporate earnings, which is key.” (1$ = 7.0642 yuan)

Editing by Vidya Ranganathan & Shri Navaratnam

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