Strategists say two factors are helping give legs to the global stock market’s Monday morning surge – bullishness about China and the view that central banks will backstop markets, CNBC reports.
A front-page editorial in the state-owned China Securities Journal is getting credit for fueling a strong rally in Chinese markets overnight that spread to global equities. Shanghai stocks jumped 5.7%, after the publication said investors should look forward to the “wealth effect of the capital markets” and the prospect for a “healthy bull market.”
“We have the Fed to juice bull markets, China has its state media,” wrote Peter Boockvar, chief investment strategist at Bleakley Advisory Group.
Individual investors appeared to be playing a role in what appeared to some traders to be a so-called melt-up Monday. The CSI 300 index of Shanghai- and Shenzhen-listed shares rose nearly 6%, to a five-year high. Hong Kong stocks jumped 3.8%.
“There’s quite a long history of policy makers using the media to drive up the market. It doesn’t always end very well,” said Mark Williams, chief Asia economist at Capital Economics. “We saw that back in 2015, exactly the same statements then. They tried to push the market higher. It worked for a while and then the market collapsed.”
Williams said the investors who stampeded into the mainland markets were clearly given a go-ahead.
“Right now, it’s rational for investors to jump into the market because policy makers are telling them the market will go up and it probably will for awhile,” said Williams, adding it’s likely to be unstable.
China’s economy faces many hurdles, including trade issues with the U.S. and the growing friction as the economies move to decouple. But in the near term, the prospect of an improving China spilled over to other markets, boosting sentiment for global trade.
“The economy has been bouncing back after the coronavirus,” Williams said. “I think China will be doing better than most of the world, but the global economy is in a bad state.”
Boockvar said there may be some justification for the gains in Chinese markets.
“International stock markets have so dramatically underperformed U.S. markets for the past 10 plus years,” said Boockvar. “You look at the Shanghai composite and it’s still down more than 50% from its 2007 high. You can talk about the individual investors … but maybe it’s possible you start to get some catch up.”
Shanghai’s gain was on top of a jump of 5.8% last week. Japan’s Nikkei rose 1.8% on Monday, while the South Korean Kospi jumped 1.7%.