Chinese investors are rushing into stocks for fear of missing out on an epic rally

By Samuel Shen and Summer Zhen

SHANGHAI/HONG KONG (Reuters) – Animal spirits have returned to China’s stock market as investors rush into stocks, galvanized by Beijing’s political bonanza and driven by fears of missing out on what some see as a rally of historic intensity .

Brokerages are swamped with retail clients and a burst of orders is clogging up trading systems as investors rotate money out of bonds and deposits into stocks, leading to a burst of stock turnover and a rise in yields.

“Deposit rates are too low and real estate investments are no longer safe,” said office worker Darren Wang, 30, who started buying stocks using borrowed money.

“There is no other way to be rich than to double down on stock bets. The market frenzy you’re seeing this time could be unprecedented.”

Stocks have endured three years of doldrums as economic activity has struggled to return to pre-pandemic dynamics while a debt crunch among property developers roiled markets.

That gloom suddenly turned to euphoria last week, when the CSI300 index rose 16% for its best week since 1998 after the government announced a raft of stimulus, including interest rate cuts and a $114 billion war chest to increase stock prices.

Many of the policies have yet to be implemented and there is no guarantee that they can fundamentally improve business conditions or cure economic ills, including the protracted housing crisis and anemic consumption. Even so, investors said they were chasing the money.

“Life has been hard for so long, and it’s finally time to make some money,” said Wen Hao, a manager at a Hangzhou-based technology startup that bought energy stocks on Monday.

He drew parallels with the 2015 bull run, when Shanghai’s benchmark stock doubled in just six months, citing huge amounts of “state-backed money on its way to the stock market”.

The central bank last week unveiled an initial 500 billion yuan ($71.30 billion) swap program to finance stock purchases by brokers, funds and insurers. It will also set up a 300 billion yuan re-borrowing facility to finance share buybacks by listed companies. Both schemes are to be expanded.

MARKET VALUE

China’s CSI300 rose more than 8 percent on Monday, extending last week’s 16 percent gain. Shares in Shanghai rose more than 7 percent, while Shenzhen shares rose more than 10 percent, with a combined turnover of 2.6 trillion yuan outpacing the bull run a decade ago.

“The bull run of 2014-2015 was funded through illegal margin financing. This time the central bank is providing the leverage,” said a hedge fund manager who was not authorized to speak to the media and declined to be identified.

The story continues

“Investors are rushing into stocks because there is state support,” the manager said, adding that the difficulty in making macroeconomic projections means growth is more about liquidity and sentiment than fundamental conditions or the corporate outlook.

Signaling official approval for the rally, the China Securities Journal said in an editorial on Monday that the revival in stocks and rising investor confidence will help the country’s economic recovery, breaking a vicious cycle of low investment and damaged sentiment.

Brokerage houses nationwide, which were quiet just a week ago, are now filled with investors eager to open accounts or borrow money to trade. Such is the demand that clearing services were unusually open over the weekend, approving new accounts.

Guotai Junan Securities has arranged extra staff at branches to handle rising demand for account openings for the upcoming National Day Golden Week holiday and to cover business hours, an internal notice seen by Reuters said.

Guotai Junan Securities did not immediately respond to Reuters’ request for comment.

Zion Zhong, client manager at brokerage Citic’s Suzhou branch, said the margin financing business has suddenly become busy.

Another manager at a Citic store in Shanghai also described an increase in business activity.

“More people are opening stock accounts; more questions about margin financing… We are many times busier than before,” the manager said.

The surge in buy orders triggered trading delays on the Shanghai Stock Exchange on Friday. The exchange ran tests over the weekend to ensure network reliability.

ROTATION

In a sign that money is flowing out of safer assets, China’s 30-year Treasury bond futures hit a two-month low on Monday after falling 3.6% last week – its worst week from history.

“A money migration of epic scale is approaching – trillions are being moved from bond funds, wealth management and other fixed income products to equities,” Zhao Jian, head of Atlantis Finance Research Institute, wrote in a note to clients. Sunday.

Three years of a bear market has encouraged tens of millions of short-term investors eager to get their money back, so “the alert will continue with some decent corrections,” Zhao said, predicting that many will be out of pocket when the market inevitably turns.

Veteran sole trader Wu Jie, 48, said he was stunned by the sudden change in mood.

“The economy remains in bad shape,” said Wu, who is currently light on his stock position.

“But if you look at trading volume, growth is likely to be sustained. I have cash ready and am waiting for a major correction to get in.”

(1 USD = 7.0125 Chinese Yuan Renminbi)

(Reporting by Samuel Shen, Summer Zhen and Tom Westbrook; Editing by Vidya Ranganathan and Christopher Cushing)