A continuing massive inflow of domestic and foreign funds yesterday pushed
the Shanghai stock index to a 5-year high with much of the buying concentrated
in banks and blue chips.
The benchmark Shanghai Composite Index, which had seen five consecutive days
of gains, breached the 2000-point psychological barrier and jumped 2.3 percent
to close at 2017.28, the highest since July 27, 2001.
The index is up about 72 percent since the beginning of this year, making
China one of the world's best-performing equities markets.
The rally gathered steam after the government initiated regulatory and
structural reforms to convert 250 billion U.S. dollars worth of State-owned
non-tradable shares to tradable ones.
The market surge is also a reflection of China's fast-growing economy and
wide expectations of the yuan's further appreciation.
These factors have combined to suck in a continuous inflow of investment
funds from institutions, analysts said.
The exchange rate of the renminbi against the U.S. dollar hit a new high last
Monday, with the central parity rate at 7.8644. The rate was 7.869 yesterday.
Figures from Shanghai-based Wind Data show that since September, 22 mutual
funds have raised 80.6 billion yuan (10.2 billion U.S. dollars) to invest in the
market.
In the past two weeks alone, eight mutual funds raised a combined 30 billion
yuan (3.8 billion dollars), indicating a new wave of capital for equities.
It predicted that by the end of this year, more than 100 billion yuan of
(12.7 billion dollars) new capital would flow into the market.
Meanwhile, the
central government has quickened the pace of allowing more foreign capital into
the stock market. The government granted 400 million dollars in new quotas in
the past week to qualified foreign institutional investors (QFIIs), bringing the
overall quota to 8.645 billion dollars.
"Those new funds are mainly invested in bank shares and other blue chips,
which have steady and continual growing potential," said Zhang Qi, an analyst
with Haitong Securities.
China Merchants Bank, which gained 1.1 per cent on Friday, jumped 6.6 percent
to 13.50 yuan (1.7 dollars). Industrial & Commercial Bank of China, the
country's largest lender, climbed 3.2 percent to 3.92 yuan (49.6 U.S. cents)
after gaining 9.8 percent last week.
"Increasing confidence in the country's economy has boosted bank shares,
which directly reflects the country's macro-economic situation," said Dorris
Chen, senior analyst with BNP Paribas.
"Also, expectations of an appreciation of the Chinese currency are helping
yuan-denominated shares to rise," he said.
Another heavyweight blue chip, Sinopec Corp, Asia's largest oil refiner,
surged 7.8 percent to 7.87 yuan (99.6 U.S. cents) following Nymex crude's fall
to a 17-month low at Friday's close.
Zhang Yichi, who manages a mutual stock fund that sold out within two days,
believes the market would remain bullish next month. He predicted that the
return for mutual fund investors next year will reach up to 25 to 30 percent.
The market capitalization of the Shanghai Stock Exchange crossed 5,000
billion yuan (633 billion dollars) on November 15.