Four Factors Fuelling A-share Frenzy

Main reference: Story in Sinafinance

IN CASE YOU haven’t noticed, Chinese shares are turning heads again rather than turning heads away.

There are at least four things driving the current upsurge and likely to keep things in positive territory for much of the way going forward.

The benchmark Shanghai Composite Index – the chief tracker of A and B shares listed in Shanghai and Shenzhen – has surged some 21% since early December.

Higher fixed-asset investment expectations will provide a boost to developers.  Photo: CR Land

But that doesn’t stop a growing body of market watchers from believing the ongoing running of the bulls has a lot more pep in its step.

Behind the scenes, it is apparent that so-called cyclical counters are driving the current benchmark Index surge, but in fact it is theme stocks that seem to be generating the most excitement.

Nationalistic sentiment was revved up over the weekend when it was announced that the Yun-20, China’s first domestically-produced military jumbo transport plane, conducted its first successful test flight.

Besides the typical flagwaving that accompanies such feats, a whole range of upstream and affiliated industries to the new aircraft were buoyed by the possibility of enhanced orders.

The patriotic drums in China were beating even louder when another feat was achieved recently -- the successful land-based mid-course missile interception by the country’s anti-missile apparatus.

After suffering a retreat in sharebuying activity, military-themed stocks once again were among the most popular following the two announcements of advances in defense technology.

And given that the two items are still in testing phase, there is every indication that successful future trials and bumped-up production will send related shares even higher.

A second factor likely to continue to provide buoyancy in China’s bourses is the upcoming provincial and municipal-level meetings slated to take place across the country.

China shares have surged some 20% since December

By their own right, such regularly-scheduled political powwows are nothing to get too excited about from a capital markets standpoint.

However, the aggregate sum of glimpses into their economic reports and objectives for the current year is giving strong indication of a sharp uptick in fixed asset investment targets, likely to end up in double-digit territory, with many regions aiming for 20% increases and higher.

This will provide a big boost for the usual suspects going forward, i.e. cement, construction materials and real estate.

Thirdly, news of five A-share listed enterprises and four financial institutions being fined for IPO-related infractions provides a level of confidence within the investing community that the market regulator will not stand for any shenanigans going forward.

It is also becoming increasingly apparent that the bourse watchdog is in no mood to approve any new IPOs in the first quarter, thus easing fears of a liquidity crunch in the A-share markets.

Finally, the new leadership installed in Beijing this past Autumn has now gotten its feet wet and can begin in earnest to grasp the economy’s helm with a steady hand.