There are noticeable similarities between Asian markets now and in 2014. The mainland China's indexes have been soaring over the past week, with the CSI 300 index, which tracks the largest stocks listed on the mainland, surging over 14 percent in the last five days. Such momentum was last seen in the final weeks of 2014 which led to building up of a bubble.
The CSI 300 is trading at a five-year high. On Monday, the Shanghai Composite Index closed 5.7 percent higher. The daily turnover on the mainland's index surpassed 1 trillion yuan for a third day, the biggest jump since March, also last seen in 2014-15.
According to the technical chart, CSI 300 index had touched its lifetime high of 5,335.12, up nearly 145 percent in just 11 months. (Source: Google Finance)
Five years ago, the Shanghai Composite Index jumped 23 percent in just two months. The valuation then stood cheap which made it easier for the retail investors to raise their stakes high in the equity market.
Reason behind the rally
The retail investors and brokerages' sentiment on the country's stock market has surprisingly become bullish. Various news agencies are indicating that the state media is fuelling the 'bullish' sentiment, which was last witnessed in 2014 where encouraging comments by state media influenced investors to gain interest in an otherwise dull equity market.
Bloomberg in a recent article cited a front-page editorial in the China Securities Journal on Monday, which said that fostering a “healthy” bull market after the pandemic is now more important to the economy than ever.
In fact, Chinese social media are exploding with searches for the term “open a stock account,” with bullish sentiment also lifting the yuan, added Bloomberg.
Furthermore, the news agency noted that the surging risk appetite is one factor behind a rout in China’s sovereign bonds, with the yield on the 10-year note rising the most since 2016. In fact, some deals were 7x competitive than last year.
Jackson Wong, asset management director at Amber Hill Capital, told CNBC in an email that “bull sentiment” in mainland Chinese shares was “driving the markets.”
Wong said the “sudden surge” in trading volume, as well as a break out for the Shanghai composite last week, raised investor expectations that “another bull run is coming.” Some of the reasons he suggested for the uptick in sentiment included the country being less affected by the coronavirus outbreak at the moment.
BOCOM International’s Hao Hong also told CNBC that the Shanghai composite has “broken through” its 850-day long-term moving average.
“The market continues to believe that the central bank will ease more, as seen by China’s recent credit and monetary expansion,” said Hong, who is managing director and head of research at the firm.
However, he added: “In China, the bull comes as swiftly as it leaves.”