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China’s stocks enter bull market as economic growth stabilises

Shanghai - China’s stocks rose, with the benchmark index entering a bull market, as the economy showed signs of stabilisation and the rollout of property curbs boosted the lure of equities.

The Shanghai Composite Index climbed 0.8% to close at 3 196.04, taking its advance from its January 28 low to more than 20%. Metal producers including Jiangxi Copper and Aluminum of China were among the biggest gainers on Friday. The Hang Seng China Enterprises Index slipped 1.4% as of 08:08.

Gains this quarter have been led by commodity producers and construction companies as the government boosts spending to bolster growth and the price of everything from coal to copper surges.

The benchmark gauge has rallied more than 6% since the end of September as cities including Shanghai unveiled curbs to cool the housing market, while margin debt is also rising.

"Liquidity is abundant and property curbs will prompt more money to flow into stocks, which look undervalued relative to homes in large cities," said Li Jingyuan, general manager at Shanghai Bingsheng Asset Management. The benchmark gauge "may go as high as 3 900," Li said.

The Shanghai Composite has climbed for the past five weeks in a row, the best run of gains since May 2015. China Communications Construction, China State Construction Engineering and Jiangxi Copper have been among the biggest performers, surging more than 30% since the end of September.

While stocks have been rising, the yuan has tumbled to a six-year low and the 10-year yield on sovereign debt climbed to the highest level since July. Moves accelerated this week as Donald Trump’s unexpected victory boosted the dollar amid speculation his policies will be inflationary, prompting the Federal Reserve to be more aggressive in raising interest rates.

In China, policy makers have increased fiscal stimulus as tepid global demand and slowing private investment weigh on the economy, with growth on track to meet the leadership’s target of at least 6.5% this year.

The world’s second-largest stock market still bears the scars of January’s turmoil, when the botched imposition of circuit breakers exacerbated volatility and prompted exchanges to halt trading early. While the Shanghai gauge is back in a bull market, it remains down 9.7% this year, while 30-day average turnover is more than 40% below the level at the end of 2015.

Investor interest in equities is lackluster compared to last year, when the market capitalization doubled to $10trn in less than 12 months before halving again as share prices collapsed. The number of new investors in the week through November 4 was the lowest in almost two weeks, and 78% below the peak in 2015.

Foreign buyers are also indifferent; inflows and turnover via an exchange link with Hong Kong have waned in recent weeks.

The government took extreme measures to shore up equities last year as the rout deepened, including banning major stockholders from selling shares, curbing short selling and directing state funds to purchase equities.

While government-owned funds still influence the market, evidence of heavy intervention has dwindled as late-day rallies become less frequent. The gauge is still down 38% from last year’s high.

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