Turnover could sig­nal peak for Shang­hai stocks

Mar­ket strate­gist says in­vestor ‘eu­pho­ria’ has driven val­u­a­tions too high and warns that a tum­ble may loom, re­ports Bloomberg.

China Daily (Canada) - - BUSINESS -

The surge in Chi­nese eq­uity trad­ing that co­in­cided with mar­ket peaks in 2009 and 2010 is back again after the Shang­hai Com­pos­ite In­dex jumped to a three-year high.

The 30-day av­er­age daily value of shares chang­ing hands on the Shang­hai Stock Ex­change ex­ceeded 200 bil­lion yuan ($32.6 bil­lion) for the first time in four years on Tues­day, ac­cord­ing to Bloomberg data.

Turnover last breached this level on Nov 9, 2010, the same day the SCI be­gan its slide into a 38 per­cent bear mar­ket. The pre­vi­ous surge came on Aug 7, 2009, two days after the start of a 23 per­cent re­treat.

“It’s a good chance we’re at a mar­ket top right now,” said David Cui, China strate­gist at Bank of Amer­ica Corp, on Wed­nes­day. “Based on ex­pe­ri­ence since the global fi­nan­cial cri­sis, surg­ing vol­umes each time marked a tem­po­rary top for the mar­ket.”

Jumps in trad­ing may sig­nal mar­ket peaks be­cause they re­flect too much in­vestor “eu­pho­ria” to­ward stocks, ac­cord­ing to Cui.

The SCI had climbed 23 per­cent this year through Wed­nes­day, send­ing val­u­a­tions to a 20-month high, as the city’s ex­change link with Hong Kong opened the mar­ket fur­ther to for­eign in­vestors and the cen­tral bank un­ex­pect­edly cut in­ter­est rates last week for the first time since 2012.

The rally left the SCI trad­ing 33 per­cent above its last bear-mar­ket nadir on Dec 3, 2012. The gauge posted av­er­age bull-mar­ket gains of 41 per­cent since 2008, with bear-mar­ket re­treats av­er­ag­ing 33 per­cent, ac­cord­ing to Bloomberg data.

Trad­ing on the Shang­hai

the 30-day av­er­age daily turnover of Shang­hai Stock

Ex­change on Tues­day bourse is about twice as high as the five-year av­er­age and 29 per­cent more than turnover on the New York Stock Ex­change. The value of shares chang­ing hands on the Chi­nese ex­change climbed to a record 338.7 bil­lion yuan on Thurs­day as stocks ad­vanced on signs of fur­ther mon­e­tary eas­ing by the cen­tral bank.

The SCI rose 1 per­cent to 2,630.49 points on Thurs­day, the high­est close since Au­gust 2011.

Chi­nese stocks have kept ral­ly­ing since Cui said in July that they were poised to de­cline, and again after he re­it­er­ated that view in Septem­ber. While he said shares may “do things de­fy­ing fun­da­men­tals for a while”, the strate­gist is stick­ing to his pes­simistic stance be­cause he said cor­po­rate debt lev­els are ris­ing and China still has ex­cess ca­pac­ity in some in­dus­tries.

There are good rea­sons for the surge in trad­ing, said Wu Kan, who helps over­see about $3.3 bil­lion as a money man­ager at Shang­haibased Dragon Life In­surance Co.

Ini­tial pub­lic of­fer­ings and the cen­tral bank’s in­ter­est rates cut are lur­ing money back into the stock mar­ket, he said.

IPOs by com­pa­nies based in the Chi­nese main­land have posted an av­er­age first­day gain of 43 per­cent this year amid reg­u­la­tory pres­sure to pre­vent over­val­ued list­ings.

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