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China’s stock market closes in on $10 trillion milestone after its biggest crash

China’s investors awaited five years for stock values to return to $10 trillion, a landmark that would seal the market’s recovery from its most gigantic crash in history.


The good news, however, is that it could happen as early as this week, and a slower pace of gains as well – which is favored by Beijing — would do it. China’s domestic equities are worth about $9.5 trillion at a later time of this month’s rally, in accordance with the data compiled by Bloomberg as of July 12th. Moreover, the advance has already grasped two of its indexes to 2015 levels and made the country’s stock benchmarks overheat, all just virtually. In local currency terms, China’s market cap is already at a record 66 trillion yuan.


The $10 trillion level, nevertheless, also topped that mark of the bubble five years back, a memory that’s still alive in investors’ minds. The similitude between now and then have begun to displease policy makers, who have taken steps to rein in stocks: Shanghai’s large caps plummeted Friday after two government funds said they plan to sell shares. All the while when state media are still championing the bull run, a front-page commentary Monday underlined the importance of a “healthy” stock market.


Notwithstanding the warnings, investor interest in Chinese shares is not obscured. The CSI 300 Index of stocks ascended 2.1% Monday, with turnover topping 1 trillion yuan for an eighth day. Hao Hong of Bocom International Holdings Co., one of the very few who had foreseen the start and peak of China’s last equity boom, states stocks are unlikely to cease at the $10 trillion mark this time. China International Capital Corp. analysts went as far as predicting the market will double in as little as five years.


“The upward trend remains intact,” Hong, Bocom’s head of research, wrote in a note. “The general mantra from the top remains supportive of the market. It helps the domestic sentiment, strengthens the national resolve, and finances capital investment into new and innovative industries.”


The value of Chinese stocks elevated even above $10 trillion for the first time in June 2015, as investors piled into the nation’s equities using borrowed funds. A tumble over the next three months had resulted in erasing more than $5.2 trillion in value as sellers scrambled to liquidate margin trades.


Around authorities, this time, appear keen to engineer a steady bull market. At 1.3 trillion yuan as of Friday, leverage is barely half the level of its 2015 peak while valuations are still relatively cheap compared to other stocks globally.


China’s domestic brokers, whose businesses stand to benefit significantly from a boom in trading and margin financing, have every interest in being bullish on stocks. But that sentiment is also becoming consensus on Wall Street, with Goldman Sachs Group Inc. and Morgan Stanley predicting that the bull market can last for the next few months at least.


The rally having coincided with China’s efforts to accelerate market reforms, like plans in the inclusion of stocks listed on the tech-focused Star board on the Shanghai Composite Index. In a blend with a market that is poised to push past a highly symbolic level, such moves are set to support further gains, in accordance with the Steven Leung, executive director at UOB Kay Hian (Hong Kong) Ltd.


“Passing the $10 trillion mark would be the beginning of a huge bull market,” he mentioned.


Writer – Soumili Roy.

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