Chinese stocks are on a historic tear right now. Just a week ago, they hit a fresh 10-year high and they're right on the edge of a big breakout.
Companies like Cambricon have seen really impressive gains, along with broader indexes like the SHCOMP. The big question bugging traders on Wall Street is if this surge - mostly fueled by a flood of liquidity rather than solid fundamentals - is going to keep going. Analysts at Goldman Sachs think yes and expect the momentum to hold up.
Trading volumes on China's stock exchanges have smashed records: one day recently, turnover topped 3 trillion yuan - just the fourth time that's ever happened. And volumes have stayed over 2 trillion yuan for 12 days in a row - the longest stretch on record. Sure, they dipped 6% from the day before, but they're still nearly double what we saw back in July.
The vibe in the market screams that a new bubble is bubbling up in China. Take this: an ETF tied to the CSI 300 index traded 78% more actively than normal on one day. Goldman folks figure we'll see even more action in tech after Cambricon warned about dialing back the speculation, but that might just slow its stock climb for a bit.
Looking at the bigger picture, in the past couple weeks, market caps for big and small Chinese companies jumped 8-10% on those huge volumes. Stocks on the Hong Kong exchange are hitting new highs for the year and the last four years. All this while the economy shows signs of slowing down and earnings tweaks are pretty meh, which has investors wondering if it's built to last. But honestly, nobody's sweating the fundamentals much - it's all about that liquidity pushing markets up everywhere.
The economy's losing steam, yet stocks are flying high. Since July, the data's been looking tired after a surprise bump in the first half, thanks mostly to killer exports. Expect the slowdown to drag on through the end of 2025, with no big policy help coming. Corporate profits aren't growing much either.
But government moves have pumped in some optimism and propped up valuations. So far this year, the MSCI China and CSI 300 indexes are up 27% and 11% respectively, mainly from expanding multiples. That's tied to good news like less trade friction with the US, lighter regulations and President Xi pushing for sensible competition, which is all helping the markets.
This isn't just a China thing; you're seeing the same in other big markets, where gains come from liquidity and higher valuations instead of real economic strength. The link between markets and the actual economy has sunk to lows we haven't seen in years.
Retail investors in China aren't at the crazy risk levels from 2015 and 2024 yet, which means there's still space to run. If that appetite ramps back up to those peaks, the CSI 300 could tack on another 18-34%.
What could screw it up? Things like sharp liquidity squeezes, regulatory jolts and macro policy misses - the usual suspects that have ended big runs in the past.
