The Chinese stock market soared by $ 1 trillion.: reasons

As suddenly as it rolled in, the crisis of confidence that shook Chinese stocks last year may be ending. The rally since January has added more than $893 billion to the value of the country’s equities, lifting Shenzhen’s risky startups and state-backed giants alike. The rebound has been so quick and widespread that it’s already triggered signs of overheating in four of China’s major benchmarks. The CSI 300 Index’s 14 percent rally is its best start to any year in a decade, and turnover across all exchanges is the highest since March.

While valuations have been low for months, Chinese equities really took off only after another set of weak economic data made monetary policy easing almost a certainty. Gains intensified when the new securities watchdog eased restrictions on trading, encouraging an increase in leveraged bets. Ample liquidity and a streak of foreign buying have fueled volumes. “It’s essentially a reflection of change in investor expectations,” said Wang Chen, a Shanghai-based partner with XuFunds Investment Management Co. “The rally’s been driven by a return in risk appetite and a valuation catch-up.”

The recovery is an about-face from 2018, when the government’s deleveraging campaign triggered a liquidity crunch and record bond defaults. Sentiment was so bearish after the equity market’s $2.3 trillion rout that average turnover was down to nearly the lowest in four years by December. Traders are quickly moving on from last month’s deluge of profit warnings and China’s weaker economic growth, focusing instead on all the reasons why the outlook should improve. An interest-rate cut from the People’s Bank of China is on the cards, while next month’s annual gathering of top-level officials may spawn more supportive policies. Even Chinese state media has chimed in, highlighting the growing bull case for stocks.

The Reasons Why China’s Stock Rally Is Nearing $1 Trillion, Bloomberg, Feb 20