Equities: Some suggest still more leeway for growth
The People’s Bank of China lowered its benchmark one-year lending rate by 40 basis points to 5.6 percent effective Nov 22, and banks including JPMorgan Chase & Co have forecast that the cut will be followed by further reductions to support economic growth.
The monetary authority refrained from selling repurchase agreements on Thursday for the first time since July.
“There will still be more leeway to go for themarket because the overallmonetary policy has slightly changed to support growth,” said Kelvin Wong, a Hong Kong-based analyst at Bank Julius Baer & Co, which has about $296 billion under management. “At least for the near term, the market should continue to edge up.”
There are signs, aside from the surge in trading, that the SCI’s rally has gone too far, too fast. The gauge’s 14-day relative strength index climbed to 79.6 on Wednesday, the highest level since July and above the threshold of 70 thatsometraders use as a signal that gains are poised to reverse.
The equity gauge is valued at 9.6 times estimated earnings for the next 12 months, the highest level since March 2013. That is 11 percent more expensive than the threeyear average. While the Shanghai market is “overbought”, the timing of the peak may depend on whether the PBOC cuts interest rates further, said Hao Hong, managing director of China research at Bocom InternationalHoldings Co inHong Kong.
“Technically, it doesn’t look good,” he said. “But we may need to wait before selling because we could be soon getting another cut.”