Why Chinese stock markets are racing

Audio 4:24

By: Dominique Baillard Follow

Stock markets around the world started the week in a resplendent form, visibly won by the euphoria of Chinese places. How to explain this very clear rebound in the markets of Communist China?

Publicity

The first explanation is quite political: the punters were strongly encouraged to invest, for almost patriotic reasons. Monday morning, an editorial published on the front page of the main Chinese financial daily called on investors to support this bull market in the face of international tensions. Since Friday, the Chinese press has also been blowing the heat by raving about the revival of the stock market. A message received five out of five by speculators who are often in China individuals, quick to put their savings to work in one of the few markets likely to bring them rapid gains. Shanghai gained nearly 6% on Monday and Shenzen gained 4%, and it continues on Monday. Quite staggering increases. Which is also explained by the return of confidence. Now that the threat of the pandemic has subsided, Chinese investors want to believe in the recovery, good figures for Chinese growth are expected next week. And it is the values ​​embodying the recovery that have progressed the most, those of banks, airlines, mines, and even brokers.

The Hong Kong stock market is also in tune, with four days of consecutive increases

The entry into force of the Chinese security law has not scared the financial circles of the archipelago, on the contrary, they see in part in this stranglehold of mainland China the promise of future gains with the maintenance of the 'order, and the influx of Chinese companies. Increasingly removed from the American markets, large companies in mainland China tend to fall back on Hong Kong. It is especially their surge that feeds the euphoria of the Hong Kong stock market. The action of the Chinese car manufacturer Geely, for example, gained 30%. Smic, China's largest semiconductor manufacturer, was also the star of the Hang Seng index on Monday, gaining 20% ​​in one session after announcing its intention to raise more than $ 6 billion on the Shanghai Stock Exchange. Moreover, according to observers, it is not only the Chinese government press which pushes the stock market upwards, brokers reputed close to the government would also be with the maneuver according to the Financial Times .

Is a financial bubble forming on the Chinese stock exchanges ?

We have in mind the precedent of 2015. Shanghai had then erased 30% of its value in a few weeks, thus ruining millions of small carriers. There are notable differences: first, even if the authorities push the wheel, for fear also that Chinese capital will evaporate towards more lucrative places, they are closely monitoring this runaway to avoid the repetition of 2015; and then the situation is not entirely comparable, the stock price is today much lower, the market therefore has a good margin of progression, finally investors have twice as little recourse to debt to finance their stock market adventures, which reduces the risk of a violent backlash. The major international banks, which have long been wary of these Chinese markets, which are still very narrow compared to Western markets, believe in their upside potential. The Japanese Nomura has reallocated part of these assets in Asian markets, believing that it is in this part of the world that the next profits will be the juiciest.

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