Caixin
Jul 06, 2020 08:13 PM
DAILY CHART

Charts of the Day: China Enters Technical Bull Market

The Chinese stock market continued its rally amid rising investor optimism thanks to boosted liquidity from a relaxed monetary policy and an economy recovering from the fallout of Covid-19.

COTD chart_1

The benchmark Shanghai Composite Index closed up 5.71% on Monday at 3,332.88, its highest close since February 2018, after rising for the fifth trading day in a row.

The index has entered technical bull territory, having risen by 25.29% since its recent low of 2,660.17 on March 23.

Liquidity was abundant as the combined daily turnover on Shanghai and Shenzhen stock exchanges reached nearly 1.57 trillion yuan ($223.3 billion), the highest since July 2015, according to data from the bourses.

COTD chart_2

Analysts said the recent market rally has been fueled by eased monetary conditions through which policymakers intended to channel funds to businesses to offset the coronavirus impact.

“Pundits are attributing the surge to the first cut in a decade in rediscount loan interest rates by the PBOC,” Hong Hao, managing director of Bocom International Holdings Co. Ltd., said in a Sunday note.

On Wednesday, the People’s Bank of China (PBOC) lowered by 25 basis points rediscount and relending rates, monetary tools used by the central bank to inject liquidity into financial markets.

“Through these rate cuts, the PBoC is conveying that it will maintain its easing stance,” economists at Nomura International (Hong Kong) Ltd. said in a note. They added that policymakers cannot afford to tighten the monetary policy stance yet, although some estimated it could be done amid concerns about exceedingly abundant liquidity and financial risks.

China’s stock market rebounded in the second quarter this year as the recovering economy in one of the earliest countries to bring the Covid-19 epidemic under control has raised investor optimism. Investors have used more borrowed money to invest in stocks.

COTD chart_3

Increasing amounts of overseas funds have flowed into the Chinese mainland market through Hong Kong. In recent weeks, Hong Kong’s benchmark Heng Seng Index also climbed, closing up 3.81% on Monday.

“The A-share market is now benefiting from the best combination of the expansion of economic activity and loose monetary conditions, so there is reason to be moderately optimistic,” Xia Chun, chief economist at Noah Holdings Ltd., a financial services provider, said in an opinion piece (link in Chinese).

Contact reporter Guo Yingzhe (yingzheguo@caixin.com)

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