The value of Chinese stocks is poised to reach $10 trillion after a world-beating rally added virtually the equivalent of Japan's equities market this year.
The Shanghai Composite Index climbed 8.9 per cent this week, its biggest jump this year, to close above 5,000 for the first time since 2008. Companies with a primary listing in China were valued at $9.7 trillion at the end of trading on Friday, an increase of $4.8 trillion since the end of 2014, according to data compiled by Bloomberg. Japan's stock market is valued at $5 trillion while the US is at almost $25 trillion.
The Shanghai measure has jumped 146 per cent in the past 12 months, the most among major global benchmark indexes, spurred by surging participation among individual Chinese investors and record margin debt. Worsening economic data has only fuelled bets the government will step up stimulus efforts.
The Shanghai Composite trades at about 25 times reported earnings. Eleven months ago, the gauge was valued at approximately 9.6 times, the lowest since at least 1998. The Shenzhen Composite, the smaller of China's two exchanges, trades at 75 times profits, five times the multiple of the MSCI Emerging Markets Index.
While the rally benefits the ruling Communist Party by helping companies reduce debt levels through selling new shares, deepening price swings are challenging the competence of the authorities to maintain financial stability in the face of a record 1.41 trillion yuan ($227 billion) of margin debt.
"Volatility will probably increase," said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co. "The higher the index moves, we'll see more investors take short-term profits."
The rally in mainland stocks has widened their premium over Hong Kong-listed peers to 36 percent, the most since 2011.
The Shanghai Composite Index climbed 8.9 per cent this week, its biggest jump this year, to close above 5,000 for the first time since 2008. Companies with a primary listing in China were valued at $9.7 trillion at the end of trading on Friday, an increase of $4.8 trillion since the end of 2014, according to data compiled by Bloomberg. Japan's stock market is valued at $5 trillion while the US is at almost $25 trillion.
The Shanghai measure has jumped 146 per cent in the past 12 months, the most among major global benchmark indexes, spurred by surging participation among individual Chinese investors and record margin debt. Worsening economic data has only fuelled bets the government will step up stimulus efforts.
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The surge in China's stocks is a "big surprise" given they were among the cheapest in the world last year, said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. "The question we'd like to ask is whether this is based on a pure bubble or whether the economy can catch up."
The Shanghai Composite trades at about 25 times reported earnings. Eleven months ago, the gauge was valued at approximately 9.6 times, the lowest since at least 1998. The Shenzhen Composite, the smaller of China's two exchanges, trades at 75 times profits, five times the multiple of the MSCI Emerging Markets Index.
While the rally benefits the ruling Communist Party by helping companies reduce debt levels through selling new shares, deepening price swings are challenging the competence of the authorities to maintain financial stability in the face of a record 1.41 trillion yuan ($227 billion) of margin debt.
"Volatility will probably increase," said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co. "The higher the index moves, we'll see more investors take short-term profits."
The rally in mainland stocks has widened their premium over Hong Kong-listed peers to 36 percent, the most since 2011.