The rise in Chinese stock prices has echoes of the 2015 bubble. What’s different?

BEIJING – The year-to-date rise in Chinese stocks looks different from the 2015 market bubble, analysts said.

Mainland China’s major stock indexes rose more than 8% on Monday, continuing their winning streak on stimulus hopes. Trading volume on the Shanghai and Shenzhen stock exchanges reached 2.59 trillion yuan ($368.78 billion), surpassing the high of 2.37 trillion yuan on May 28, 2015, according to Wind Information.

Over six months from 2014 to 2015, China’s stock market doubled in value as leverage rose, Aaron Costello, regional head for Asia at Cambridge Associates, noted on Monday.

This time, the market hasn’t risen as much, while debt levels are lower, he said. “We’re not in the danger zone yet.”

According to Wind Information, equity market leverage in 2015 was much higher in percentage and value than Monday’s data showed.

The Shanghai Composite rose above 5,100 points in June 2015, a level it has never reached since a market downturn later that summer. MSCI that year postponed the addition of mainland Chinese stocks to its globally tracked emerging markets index. Beijing’s sentiment was also hit by a crackdown on borrowed money trading and a surprise devaluation of the economy. Chinese Yuan against the US dollar.

This year, the yuan is trading stronger against the dollar, while foreign institutional allocation to Chinese stocks has fallen to multi-year lows.

The Shanghai Composite closed at 3,336.5 on Monday, before mainland stock markets closed for a weeklong holiday to commemorate the 75th anniversary of the People’s Republic of China. Trading will resume on October 8.

In the run-up to the 2015 market rally, Chinese state media had done just that encouraged stock investmentswhile loose rules allowed people to buy shares with borrowed money. Beijing has long tried to build up its domestic stock market, which at about 30 years old is much younger than the US.

The latest market gains follow announcements over the past week of economic support and programs to encourage institutions to put more money into stocks. The news caused shares to recover from around their lowest levels of the year. The CSI 300 rose nearly 16% in its best week since 2008.

Chinese President Xi Jinping led a high-level meeting on Thursday calling for halting the real estate market decline and strengthening fiscal and monetary policies. The People’s Bank of China also lowered the interest rate and amount that existing mortgage holders must pay last week.

‘The policy is much stronger and [more] This time there is more consultation than in 2015. That said, the economy is facing greater headwinds[s] now compared to then,” said Zhu Ning, author of “China’s Guaranteed Bubble.”

One week of huge stock gains does not mean the economy is headed for a similar recovery.

The CSI 300 remains more than 30% below its February 2021 high, a level that had even surpassed the index’s 2015 high.

“The Japanese experience provides an important perspective, as the Nikkei 225 Index rebounded four times by an average of 34 percent on its way to a cumulative decline of 66 percent between December 1989 and September 1998,” said Stephen Roach, a senior fellow at Yale Law. School Paul Tsai China Center, be Tuesday in a blog post that was also published in the opinion section of the Financial Times.

Economic data in recent months points to slower growth in retail sales and manufacturing. That raised concerns that China’s gross domestic product would fall short of its full-year target of around 5% without additional stimulus.

“I think what’s missing is the key to a lot of this. It hasn’t come out yet. What would be a really confidence-building measure is how are they going to get the local government finances in order,” Costello said, once pointed to the local treasury. relied on land sales to spend revenue on public services.

While Chinese authorities have cut interest rates and eased some restrictions on home buying, the Finance Ministry has not yet announced additional debt issuance to support growth.

Peter Alexander, founder and managing director of Z-Ben Advisors, expects the level of fiscal stimulus – when it is likely to be announced in late October – to be lower than what markets are hoping for.

It “may have investors a little bit over their skies, as people like to say,” he said Monday on CNBC’s “Street Signs Asia.”

He added in a written response that his experiences in 2007 and 2015 indicate that the Chinese stock market rally could last another three to six months or end abruptly.

“These are pure animal instincts and the Chinese are in the grip of a stock market rally,” Alexander said. He added that there are market risks associated with the stock trading system’s unpreparedness for the wave of buying.

Data on the number of new retail investors in China this year was not publicly available. Reports indicate that brokers have been inundated with new requests, echoing how individuals stormed the stock market almost a decade earlier. The Shanghai Stock Exchange said on Friday that confirmation of trades on the market had been open abnormally slow.

‘China was cheap and lacked the catalyst. …The catalyst has emerged to unlock the value,” Costello said.

“Fundamentally, we need to see corporate profits rise,” he said. “If that doesn’t go up, this is all a short-term dummy.”

Beijing’s efforts earlier this year to halt a market disruption included replacing the head of the securities regulator. Stocks rose, but the rally ended in May.

One factor that could drive shares above May levels is that per-share earnings estimates have stabilized from downgrades earlier this year, James Wang, head of China strategy at UBS Investment Bank Research, said in a note on Monday .

Lower U.S. interest rates, a stronger Chinese yuan, more stock buybacks and a more coordinated response from policymakers are also supporting gains, he said. Wang’s last price target of $70 for the MSCI China index is now just a few cents higher than where it closed on Monday.

— CNBC’s Hui Jie Lim contributed to this report.