The value of Chinese stocks rose above $10 trillion for the first time, the latest milestone for the nation’s world-beating rally.
Companies with a primary listing in China are valued at $10.05 trillion, an increase of $6.7 trillion in 12 months, according to data. The gain alone is more than the $5 trillion size of Japan’s entire stock market. The United States is the biggest globally at almost $25 trillion.
China’s equities boom—spurred by individuals buying with borrowed funds to bet gains will continue—is making history. No other stock market has grown this much in dollar terms over a 12-month period. Yet signs of excess have emerged. Valuations are the highest in five years and margin debt has climbed to a record, all while the economy is mired in its weakest expansion since 1990, Bloomberg reported.
Outside of China, investors are not showing the same enthusiasm toward the nation’s equities. Funds pulled a net $6.8 billion out of Chinese stock funds in the seven days through Wednesday, Barclays said in a research note, citing EPFR Global data. Dual-listed Chinese shares cost more than twice as much on average on mainland exchanges than they do in Hong Kong.
MSCI’s June 9 decision against including mainland equities in its benchmark gauge had little impact on the Shanghai Composite Index, which climbed 2.9 percent last week to its highest level since January 2008. Foreigners are limited by quotas when buying shares in Shanghai via an exchange link with Hong Kong, while similar access to Shenzhen-traded stocks will likely start this year, according to the Hong Kong bourse.
Stock Valuations
The Shanghai gauge has rallied 60 percent in 2015, the most among global benchmark indicess, and trades at about 26 times reported earnings. Less than a year ago, the gauge was valued at about 9.6 times, the lowest since at least 1998. The Shenzhen Composite Index, tracking stocks on the smaller of China’s two exchanges, trades at 77 times profits after surging 122 percent this year.
While the latest data showed the economy stabilizing, indicators from retail sales to industrial output are still growing near the slowest pace in years and trade remains weak. Exports slumped in May and imports declined for a seventh month.
Profits in the Chinese gauge trailed analyst estimates by the most in six years in 2014 as economic growth slowed to 7.4 percent, the slowest pace in more than two decades.
Mainland investors’ fervor for stocks remains undaunted, with a record 4.4 million trading accounts opened in the final week of May, and margin debt on the Shanghai exchange rising to a record 1.44 trillion yuan ($232 billion) on June 11.
