GIULIETTA TALEVI: Does tragedy loom in China’s stock surge?
The East Asian country’s share market is the best performing in the world this year. But a previous rally, in 2015, ended in fairly dramatic fashion over the course of a few months, burning plenty of would-be investors who thought they’d bought into the big time
In case you missed it, yesterday was the first day of trading on the JSE for a new SA-listed China-focused exchange traded fund (ETF).
The Satrix MSCI China ETF, as it’s called, is the easiest way for South Africans to get exposure to companies like Alibaba, Tencent, Ping An Insurance and China Mobile. According to Satrix, it is “the most successful IPO since the Satrix 40 launched in November 2000”.
It’s not hard to see why.
The Chinese stock market has boomed this year, particularly in the past few weeks, after the Chinese government urged patriotic punters to pile in. It is, in fact, the best-performing stock market worldwide this year, with gains of 8% on the Shanghai Composite Index.
That 8% might not sound like much, but it’s healthy enough, considering that all stock markets lost between 20% and 30% of their value in March. The mighty S&P500 itself, the index of the largest US stocks, is flat for the year, even after a stonking rally in April and May.
The New York Times has a fantastic read on the frenetic rush into Chinese equities, and the stats are, quite frankly staggering.
“Chinese stocks rose by nearly 1-trillion dollars in the span of a few short weeks, shocking even the most sanguine of financiers. There are more than 160-million trading accounts in China, and the majority are held by retail investors who make less than $700 a month,” it says.
But here’s the part that might make you hit “pause”: “It’s just like gambling,” Wu Hao, a small-time investor from Beijing told the newspaper. According to the publication, he “rode another remarkable rally in Chinese stocks, in 2015”.
Back then, the rally ended in fairly dramatic fashion over the course of a few months, burning plenty of would-be investors who thought they’d bought into the big time.
The latest Chinese rally, and the growing froideur between the US and China, is also the subject of John Authers’ Wednesday newsletter on Bloomberg, which I recommend you subscribe to.
In it, Authers writes that neither China nor the US appears to be “bothering with diplomatic niceties any more”.
On Wednesday the US ordered China to close its consulate in Houston, Texas, over spying fears, which prompted an immediate condemnation from the Chinese government.
Ordinarily, this sort of tit-for-tat would properly spook markets. Yet it hasn’t.
This, writes Authers, is what some would call a seismic shift. “It is having no perceptible effect on Chinese assets, or on investors’ willingness to invest there. No stock market has done better than China’s so far this year,” he writes.
The key words in that sentence may be: ‘so far’. Still, for all those fresh-faced new JSE buyers, let’s hope the fun continues.
The alcohol issue
For a more sobering read on how the government completely bungled the booze ban, you need to read Business Leadership CEO Busi Mavuso’s analysis.
We really, really hope President Cyril Ramaphosa and his command council are reading it too.
*Talevi is the FM's Money & Investing editor.
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