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Booming stock market a yes vote for China economy

(Xinhua)    19:28, April 08, 2015
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(Photo source: Xinhua)

BEIJING, April 8 -- Chinese shares are on a bull run in spite of a slowing economy. The market, while bewildering some traders, stands as a natural reflection of the great expectations for the world's second largest economy, which is undergoing transformation and restructuring.

Boosted by strong confidence and ample liquidity, the Shanghai Composite Index continued its winning streak and advanced to fresh seven-year highs on Wednesday.

During the trading, the Shanghai shares climbed above 4,000 points, a key benchmark, for the first time since early 2008.

The Shenzhen Component Index gained 0.53 percent to close at 13,841.72 points, also a fresh seven-year high.

Combined daily turnover on the Shanghai and Shenzhen bourses set a new record at 1.55 trillion yuan (about 251 billion U.S. dollars).

Heavyweights led the surge, as PetroChina, the country's largest oil and gas producer, jumped 1.96 percent to end at 12.51 yuan per share, and major insurer China Life jumped 4.3 percent to 40.75 yuan.

The railway infrastructure sector expanded by 4.4 percent. High speed rail manufacturers China North Railway and China South Railway rose by the daily limit of 10 percent, as their merger progresses.

The financial sector jumped 3.78 percent, led by Western Securities, which climbed by the daily limit of 10 percent.

The fresh highs were reached in spite of an upcoming wave of new share offerings which will reduce liquidity.

China's security regulator last week approved 30 initial public offerings (IPOs), which could lock up as much as 3.7 trillion yuan in subscription funds over the next two weeks.

Analysts attributed the booming market to liquidity as a result of the monetary easing. Combined daily turnovers on the Shanghai and Shenzhen bourses has remained above one trillion yuan for the past two weeks.

To bolster the lukewarm real economy, the central bank has cut benchmark interest rates twice and banks' reserve requirement ratios (RRR) once since November.

About one trillion yuan of fresh funds flowed into the stock market in the first quarter of this year, reported the official Securities Times on Friday.

For individual investors in China, the stock market is clearly not plain sailing. Shanghai shares have been sinking for about five years before the start of this round of bull market late in 2014.

In August of 2009 the index was just shy of 3,500 points and has lost about a third of its value since. Even the key 4000-point mark is still some 2,000 points short of the all-time high reached in October 2007 at 6124. The ship appeared to be foundering and numerous investors closed their accounts and jumped overboard.

The bull run is now tempting many to climb back aboard. From March. 23 to March 27, 1.67 million new accounts were opened in the Shanghai and Shenzhen A shares markets, a record high number.

It is no easy job to attract so many new funds back. It is strong confidence in the Chinese economy, which is witnessing deepening reforms and restructuring, that has lured them back.

Instead of being directly linked to China's economic growth speed, the bull market is rather a result of multiple factors including funds, confidence and policies, Ni Zhengdong, founder of Beijing-based venture fund Zero2IPO Group, told Xinhua.

Since the new leadership took power in 2013, reforms of state-owned enterprises and the financial sector have been been accelerated, and programs including the Belt and Road Initiative and regional integration plans have also boosted morale in the market.

Popular entrepreneurship and innovation, adopted as the new engine for the "new normal" economy, and "Internet Plus" action plan unveiled by Premier Li Keqiangduring the parliamentary sessions in March have also boosted investors' confidence in the economy which is undergoing transformation and restructuring, Ni said.

All these factors intertwined together have brought "enormous positive energy" to the stock market, he said.

From the beginning of the year until Wednesday, the Shanghai and Shenzhen shares have surged 23.5 percent and 25.7 percent respectively, while the ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, soared 69.1 percent.

Analysts warned that risks still remain as a sustainable and healthy bull market must be built on a strong real economy.

Moving away from the double-digit growth of the most recent decade, China's economy has been facing notable downward pressure and has entered a stage known as the new normal, characterized by slow, but higher quality growth.

The economy posted 7.4 percent growth in 2014, its weakest since 1990. The annual growth target was lowered to around 7 percent for 2015.

Only when the great expectations for the real economy, which are embodied in the current bullish market, are reached, can the bull market get a solid foundation, Ni said.

(For the latest China news, Please follow People's Daily on Twitter and Facebook)(Editor:Kong Defang,Bianji)

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