Chinese Stocks Are on the Brink of Exceeding 2015 Bubble

China’s stocks are close to reclaiming highs last reached in 2015, when a bubble inflated prices before bursting. Valuations are more reasonable this time around and there are few signs of frenzied speculation. Instead, the country’s relative insulation from the pandemic and a global bull run are helping drive gains. The U.S. delisting of Chinese firms has little impact on domestic sentiment.

The CSI 300 Index is less than 2% below its closing high from June 8, 2015. The gauge has surged 49% since last year’s March low as the country shook off the grip of coronavirus. Buying momentum is the strongest since July, while the index trades 15% below its 2015 high on a forward price-earnings basis.

IN FOCUS

  • The Shanghai Composite is also set for a bullish breakout: the index on Monday pushed further above a key resistance line around 3,460 points -- a level that had capped gains for the benchmark since China’s stock meltup in July.
Chinese Stocks Are on the Brink of Exceeding 2015 Bubble
  • FTSE Russell said it would delete three more Chinese securities from its indexes, a move that was widely expected after the U.S. expanded to its list of sanctioned companies. China United Network Communications, SMIC and Nanjing Panda Electronics will be cut from Thursday, adding to the eight firms already on the removal list.
  • Beijing may require that U.S. companies doing business in China disclose any military links, according to the state-backed Global Times newspaper. The report singled out the “principle of reciprocity,” citing an adviser to China’s securities regulator.
  • China’s central bank may use Tuesday’s fixing to send a signal on its tolerance for the yuan’s rally. The spot rate surged by the most in three months on Monday, widening its premium over the last fixing to the largest since November.

MOVERS

  • The NYSE’s decision to delist some Chinese ADRs will “reinforce HKEX’s status as the key listing venue for mainland companies,” according to Citigroup analysts, who also predicted more secondary listings from U.S-listed Chinese firms. Shares of Hong Kong’s exchange operator jumped 68% in 2020, and Citi’s new HK$500 price target implies a gain of 13%.
  • Shares of WuXi Biologics may drop in Hong Kong after a shareholder agreed to sell 102 million shares at HK$96.50 apiece. That implies a 6.5% discount to Monday’s close.
  • Zhongtai Cryogenic Technology may move in Shenzhen after estimating net profit rose as much as 180% in 2020.

For further reading:

CHINA/HK DAYBOOK: ADRs Fall on Delisting Concerns; Bond Defaults

CNOOC Seen as Next Potential U.S. Delisting Target: China Today

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