China’s stock market has been ripping higher, bolstered by both state money and large institutions that have helped to counter otherwise tepid sentiment around the country’s economy.
The benchmark Shanghai Composite Index has jumped by has risen by over 5% in the past one-month period and has surged by more than 18% so far this year.
These gains have overshadowed a weak outlook for the wider Chinese economy, which is grappling with a multi-year property crisis and muted consumer spending. Artificial intelligence-fueled outperformance in the Chinese tech industry, meanwhile, has not totally masked declines in traditional industries, spurring worries around the wider employment picture.
Yet analysts have largely remained bullish on the rally’s staying power, highlighting that the uptick has been underpinned mostly by institutional investors, while Chinese households are still holding a record 160 trillion yuan in savings.
The People’s Bank of China has also played a major role, utitilizing targeted tools like relending programs and swap schemes to help boost the ability of institutions to continue buying shares.
Officials have noted that the stock market’s rise could help shore up household balance sheets, although analysts cited by Reuters flagged that the economic benefits of higher stock prices are muted.
Still, the rally is tipped to "fare well for a while yet," analysts at Capital Economics said in a note, rejecting recent fears that the Chinese equities might be in a "small bubble."
While forward earnings estimates of the major domestic indices have risen "quite a bit," these valuations do not stand out when compared with those elsewhere around the world, the analysts argued. They highlighted that the price-to-earnings ratio of the combined tech sectors of the MSCI China Index, for example, stands at around 16, versus roughly 24 for the same sectors of the MSCI All Country World Index.
"That leaves plenty of room, in our view, for a continued improvement in sentiment towards the former even if they may not catch all that ground up, and despite a broader economic backdrop that is not all that strong," the Capital Economics analysts said.
"As such, we think China’s equity rally isn’t finished, and forecast it to make
Source :
https://www.investing.com/news/stock-market-news/is-chinas-stock-rally-a-bubble-or-just-the-start-of-more-gains-4237290
