China is on pace to be the world’s best-performing major stock market in 2019, with the benchmark CSI 300 index up by a third this year as investors shrug off the country’s slowing economy and bruising trade war with the US.
Bourses in Shanghai and Shenzhen have added $1.4tn in market capitalisation so far, taking the total value of onshore equities to about $6.8tn this year, buoyed by a revival of domestic investor confidence and continuing international inflows.
The 31 per cent advance by the index of major Shanghai and Shenzhen-listed stocks outpaces the 8.5 per cent rise by the UK’s FTSE 100, the climb of 11.5 per cent by Japan’s Topix and the gain of 22.3 per cent by the US S&P 500.
Even after accounting for weakness in China’s renminbi, the country’s stock benchmark is up more than 28 per cent this year in dollar terms.
The resurgence follows a dismal 2018, when the CSI 300 fell 25 per cent. That made China the worst-performing major stock market as equities were battered by the intensifying trade war and a deleveraging campaign by Beijing that tightened domestic liquidity.
Margaret Yang, an analyst at CMC Markets Singapore, said the market had been primed for a comeback this year as the retail investors who dominate mainland China’s stock markets began to view shares as undervalued.
She added that fears of the trade war’s impact had also eased in China, where consumption has held up relatively well and the government has made a concerted effort to frame the conflict with Washington in terms that emphasise Beijing’s position of strength in the negotiations.
“People are much more confident about China’s position in the trade war and tend to believe [it is] not going to destroy the Chinese economy,” said Ms Yang.
International investors are likewise undeterred, with MSCI’s decision to raise the share of Chinese stocks to be included in its flagship Emerging Markets benchmark helping to maintain steady inflows despite US threats to extend tariffs to virtually all goods imported from China.
Overall, net purchases of Chinese equities this year, conducted through stock connect programs run by the Hong Kong exchange with counterparts in Shanghai and Shenzhen, total almost $32bn, almost exactly equal to inflows from a year ago, according to Financial Times calculations based on Bloomberg data.
However, Caroline Yu Maurer, head of greater China equities at BNP Paribas Asset Management, said further upside for stocks was probably limited this year, thanks partly to the smaller scope of stimulus planned for the economy.
“There’s no urgency to loosen [monetary policy] significantly in the short term, especially if trade conditions get a bit better,” she said. That has focused attention on a meeting next month between US and Chinese officials aimed at sealing a preliminary trade deal.
“If the meeting in November turns out to be a lot more positive probably that’s another leg up; if it’s negative you’ll see selling pressure,” said Ms Yu Maurer.
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