Chinese Stocks Soar to Decade Highs

SHANGHAI (Reuters) – Chinese stocks have reached decade highs after a rally supported by state-backed institutions and larger investors, while retail investment is gradually increasing, providing a fresh tailwind.

Despite a sluggish economic recovery in China, Shanghai stocks are at levels not seen since 2015. Analysts attribute the continued rally to relatively low valuations and the availability of capital, predicting retail investors will shift from low-yielding deposits to stocks.

The Shanghai Composite Index has risen about 25% since April lows.

Key Highlights

1. Soaring Margin Financing
   Outstanding margin financing hit 2.18 trillion yuan ($304.77 billion), the highest since mid-2015, while earnings yield for Chinese stocks outpaces that of Chinese bonds.

2. Coming in Hot
   Stock investments from Chinese insurers, mutual funds, and ETFs are on the rise as regulators encourage institutional participation, suggesting the rally is driven by local long-term investors.

3. Wealthy Investors on the Way
   Newly-registered private securities funds reached their highest size in July since late 2021, indicating high net worth investors are also entering the market.

4. But Retail and Foreign Money Still on the Fence
   Data shows retail investors are hesitating to open new accounts, and foreign investments in Chinese onshore stocks remain low this year. Analysts believe there is still substantial capital on standby, ready to enter the market.

> (Currency conversion: $1 = 7.1529 Chinese yuan renminbi)