After months trying to convince investors to come back to China's battered stock markets, there are signs authorities may be getting their wish as money starts flowing back in.
China's benchmark Shanghai stock index is still a third below its June peak, but there are unquestionable signs of life in the market.
The index hit a seven-week high last week and posted its best weekly performance in four-and-a-half months. Money flowing into the stock market was greater than money flowing out for the first week in six. In fact, weekly volume and turnover broke through 10-day and 100-day averages on Friday.
Investors have resumed borrowing money for margin trading for six straight days of rises, the longest streak in two months; the Shanghai exchange volatility index - China's "fear gauge" - has fallen to six-month lows.
"It's time to buy shares again," said fund manager David Dai. During the slump he cut stocks to just 10% of his asset mix.
They are now 70% of his 200 million yuan ($31.7 million) fund that he manages for Nanhai Fund Management Co after he invested in such sectors as cloud computing, satellite navigation and pharmaceuticals.
"The market is back to normal. I don't see any systemic risk now," he said.
Still, stock traders said there are no clear reasons for the sudden signs of life in a market that had been flatlining for weeks and plenty of investors are staying away after a tumultuous summer when Beijing rewrote the rules of trading with heavy-handed intervention.
The flurry of measures to stem a full-blown panic stifled trade and spread fear among Chinese-based investors as regulators launched investigations to root out those speculating. Some analysts believe the buying was aimed at front running fresh stimulus measures from the government to revive an economy that is heading in 2015 for its weakest full-year growth in more than two decades. Reduced prospects for a US rate rise this year could also have spurred buying.
"There's no disagreement that the rebound was the result of some investors adding to their stock positions," said a mutual fund manager at Guotai Asset Management.
"But what happens next? Many investors got burnt, or even killed by the market rout, and I doubt they will come back again anytime soon." The fund manager, who declined to be named, admitted the financial system is flush with liquidity - evidenced by sharp falls in bond yields recently - but "risk-adverse investors will not buy stocks when the economy remains in bad shape."
REASONS TO BE CAUTIOUS
Shanghai's top four exchange-funds (ETFs) that track China's major indexes witnessed small inflows over the past weeks. They are typically used by big institutions, such as insurers, to place directional bets on stocks, so the modest buying suggests deep-pocked investors remain cautious. For others, the scars of the mid-year slump run deep, even though the fall came after prices had doubled in the preceding six months.
"I am not getting back to the market now," said Zhou Junan, a 22-year-old student in Guangzhou, in southern China, who pulled out of the market last month after losing two-thirds of a 15,000 yuan investment.
"There is no good economic news to boost the stocks after a slew of weak economic data," Zhou said.
To be sure, there are reasons to be cautious.
Small-cap stocks remain expensive; the ChiNext growth market trades at a lofty earnings multiple of 76, and while Shanghai's valuations are much lower - 14 times earnings compared with 18.9 for Wall Street's S&P 500 Index - that's largely due to low pricing for index heavyweights like banks and insurers. So the rest of the market is much more expensive.
"Banks are cheap, but you dare not buy them, because in the event of an economic hard landing, bad loans would wipe out profits," said the Guotai manager.
It is also more difficult to hedge against a price fall. China's crackdown to suppress "malicious short selling" has gutted trade in index stock futures.
The risk is that the modest revival in trade will prove to be a short-term rebound before prices fall again or an overreaction to hopes for more stimulus measures when the Communist Party meets this month to set its next five-year plan for economic and social development.
Fund manager Dai is unperturbed though.
"A bottom is formed when investors like us overwhelm trend investors. But when the upward trend of the chart is clear, those momentum players will come back again."
