While Americans have trouble following state orders to wear masks to protect themselves and others, the Chinese were told by the authorities to invest in the stock market--and they complied, so much so in fact that Chinese stocks got a $460-billion boost in value Monday alone, with Tuesday still showing upward mobility.
Monday was a record-breaking day for the Chinese stock market, representing the biggest increase in shareholder wealth since the global financial crisis, according to Bloomberg.
Beijing released new economic data Monday that indicated a sector-wide recovery, and followed that up with a major front-page spread in the state-run China Securities Journal calling on investors to harness the “wealth effect of the capital markets” in what they described as a looming “healthy bull market”.
Immediately following the publication, the Shanghai Composite Index stocks gained 5.7%--its highest since early 2018.
And in Hong Kong, things weren’t just good--they were decisively bullish, with Hong Kong’s Hang Seng Index gaining 3.8% Monday, for a nearly 1,000-point boost.
By Tuesday, presumably after seeing the massive response from Monday’s publication, Bloomberg describes other publications as attempting to instill a bit of sobriety in investors and warning them against over-subscribing in an attempt to get rich overnight.
The million-dollar question now is this: Is China really recovering, and is there any fundamental basis for this sudden new bullishness?
One report that contributed to the bullish sentiment came from Caixin China, a private gauge of Chia’s service-sector activity, which was one of the hardest hit in the pandemic.
The Caixin China services purchasing managers index ended up spiking to 58.4 in June, from 55 in May. That’s 8.4 points above the 50-point mark that separates expansion from contraction. It also represented a 10-year high for the Caixin China services PMI, according to MarketWatch. Related: Peru's Mining Industry Pummeled As Coronavirus Cases Surge
Also weighing in is three months of inflows of foreign investors using Hong Kong brokerage firms to invest in the mainland, TS Lombard’s Rory Green noted for Barron’s. That is in stark contrast to the major declines in this flow in March.
“The market move looks like the start of a retail driven ‘mad bull’ run. This is fairly common in China’s retail driven markets,” Green told Barron’s, noting that the move “looks to have some room to run”.
On Monday, Goldman Sachs also chimed in with a note of optimism in a note carried by Bloomberg. Strategists said there was “still-decent risk-reward for Chinese stocks unless U.S.-China relations substantially deteriorate from here, lending support to our Overweight call on China in a regional context”.
Back in the U.S., the China stock surge also buoyed Wall Street, with the Dow closing up 459 points Monday.
Tech stocks were the biggest winners, including Amazon (NASDAQ:AMZN), which gained 5.8% to hit over $3,000 a share …
and Netflix (NYSE:NFLX), which jumped 3.6%, closing in on $500 a share.
Tesla continued on its tear, too, with or without Chinese market help. For the fourth straight day Monday, Tesla shares soared, with even Wall Street’s Tesla bears changing their tune finally.
By Josh Owens for Safehaven.com
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