THE SHANGHAI Composite, the benchmark tracker of China’s A shares, ended the week with a big bang, tacking on another 3.2% for the day to finish at 2,971.16 points.
This helped push the Index up some 12% in the holiday-shortened month of October, and analysts are clamoring to chime in on where they see valuations headed.
A Chinese language piece in SinaFinance said growing global pressure on China to allow its currency to adhere more closely to a market-based valuation may make export-reliant firms jittery, but several other sectors are clear beneficiaries
The fast growing commercial aviation sector clearly stands to gain from a stronger yuan currency as imported aviation fuel would become relatively more affordable
This helped Air China (SHA: 601111) to rise by 9.7% Friday while domestic peer carrier China Southern Airlines (SHA: 600029) hit its daily limit, rising 10% on the day.
Financial institutions were also higher, continuing a gradual comeback from a very weak performance so far this year on both fundamentals and policy uncertainty
Bank of China's (SHA: 601988) Shanghai-listed shares added 4.3% yesterday while the country’s biggest bank by assets – ICBC (SHA: 601398) – rose a whopping 7.5%
Following six consecutive trading sessions of gains, most analysts expect profit taking on Monday
But their longer-term expectations for the bourse were anything but unified.
“The past week has been staggeringly bullish, and my concern is that the Index is rising too high too quickly.
"I think this should be worrying to experienced investors and should not put old-fashioned company research out of style because individual stocks within the same sector still often perform very dissimilarly,” the report cited a market watcher from Shanghai-based Shi Ji Investment as saying.
China Lion Securities pointed to global monetary policies as authoring a lot of the bullishness in China’s capital markets of late, and said investors ignore this fact at their peril.
“It is important to remember that the market only truly began to take off on September 30, and has been a true overperformer since. But we also cannot ignore the fact that loose monetary policy, especially in the US, is freeing up a lot of capital and the recent strong trading turnover in many marekts around the world is evidence of this phenomenon,” an analyst with China Lion said.
But investors needed to be aware that it was not necessarily the future earnings potential of select counters that was lifting the Shanghai Composite Index of late, but the strong inflow of funds and robust trading volume was certainly a major driver, especially following bottled-up demand after the extended holiday ealier this month.
“There is new talk of yet another rate cut in Washington, so we need to be wary of strong inflows and the potential for continued sharp fluctuations in either direction.”
But given the lower interest rates, the capital markets remained the best place for investment for now.
“Lower rates make banks a less attractive investment option, so stocks are still the best bet.”
Another market expert said that the five-day National Day trading holiday in the PRC was key, because during the period in the beginning of this month, the US, the EU and Japan all acted to weaken their respective currencies, whether through central bank intervention in forex trading or lowering of interest rates.
“The brewing ‘currency war’ is increasingly heating up, but also boosting the availability of cheaper money to invest in stocks. While a weaker yuan may not help a good deal of domestic manufacturers, especially those with heavy external demand reliance, the inflow of funds acts as a definite driver for most stocks,” the analyst said.
It was also noted that the weaker than expected restrictions on the property sector coming out of Beijing this past month have meant that not only are real estate stocks on the rise but also developers are free to invest their windfalls in capital markets in the absence of any new substantial or pecuniary taxes levied on the sector meant to stymie speculation.
The analyst added that the post-National Day market performance has its own positive reinforcement effect with several fencesitters wanting to get in on the action, a phenomenon which could be witnessed with some of the more impressive valuation growth at high-profile flagship counters in select sectors.
However, the market watcher did end on a positive note, saying that it was likely that around 70% of listed firms would report an earnings improvement for the third quarter, with several companies yet to release results and therefore potentially more wind in the sails.
Read recent:
CHINA SHARES: Index Breaks 2,800 Mark With 2.5% Surge On Record Turnover
CHINA SHARES: Weeklong Break Over, Whereto Now?
