Shanghai’s main stock gauge logged its strongest close in 10 years on Monday, lifted by local money flowing back into shares as signals of calmer trade ties with the United States improved sentiment.
The Shanghai Stock Exchange Composite Index rose 0.9% to finish at 3,728, the highest closing level since August 2015, according to Bloomberg data.
The advance seals a 20% rebound from the April slump that followed sweeping US tariffs announced by President Donald Trump. Trump extended a tariff truce with China last week, giving investors another reason to wade back into equities.
China stock investors scale up activity
Much of the buying has come from small investors who have built up near record-high savings and are shifting cash out of bonds. Many of these investors were burned a decade ago, when a sharp crash led Beijing to deploy state-backed funds to steady prices, leaving a lasting scar.
Since then, there have been several short-lived rallies. Over the past decade, onshore Chinese shares have trailed indexes in the US, across Asia, and even in Europe, long seen as a weak spot for stock pickers. Fund managers inside China say the latest upturn looks better supported, citing interest in artificial intelligence and steps from authorities to support growth.
“We’re confident that this rally has legs,” said Wang Huan, a fund manager at Shanghai Zige Investment Management Co. Ltd., pointing to ample cash in the system, moves to curb price wars, and hopes that the economy is finding a floor.
Another driver is the rotation out of fixed income. Investors have lowered expectations for big monetary easing and are reacting to Beijing’s decision to restart taxes on interest earned from government bonds and securities issued by financial institutions.
China’s 10-year government bond yield rose four basis points to 1.78% on Monday, while the 30-year yield was about six basis points higher at 2.11%. Thirty-year bond futures recorded their steepest fall since March. The central bank’s latest monetary policy report also signaled that officials are not in a hurry to deliver aggressive stimulus.
Market still below previous highs
Even with the rebound, the Shanghai Composite remains far below levels reached during the boom in 2015, when leverage-fueled buying drove the index as high as 5,166 before the bubble burst. The index’s record top was set in October 2007.
Relief around trade has also changed the tone from only a few months ago, when fears of a long and costly confrontation between the world’s two largest economies rattled global markets. The bounce in China is part of a broader upswing. Stocks in the US and Indonesia set new highs last week, helping an MSCI gauge of global equities climb to a record.
Trading activity on the mainland has surged with the move higher. Turnover on Shanghai and Shenzhen exchanges topped 2.7 trillion yuan ($376 billion) on Monday, the second-largest on record after a peak on October 8, Bloomberg data show.
The risk-on mood has spilled across the border too: mainland investors bought a record HK $35.9 billion ($4.6 billion) of Hong Kong shares on Friday.
Leverage is rising as well. Loans used to buy shares have jumped, with margin debt last week reaching its highest level since 2015 and now sitting about 10% below its all-time peak.
Policy adjustments are also channeling funds toward domestic equities. Authorities have tightened enforcement of taxes on profits from overseas stock trades and announced subsidies for interest payments on eligible personal consumer loans.
So far this year, the Shanghai Composite is up 11%, outpacing the CSI 300 Index, which is up around 8%.
A heavier share of strong-performing bank stocks in the Shanghai gauge has aided that edge, helped by purchases from insurance funds. Investors and managers now watch to see whether the mix of better mood, tighter policy signals in bonds, and steady official support can keep the rally going.
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