Shanghai Composite Index Breaks 3,000 for First Time Since 2011 

China’s Shanghai Composite Index surpassed 3,000 for the first time since 2011 and a gauge of the nation’s biggest companies headed for a record winning streak on optimism shares will extend their world-beating rally.

Citic Securities Co. and Haitong Securities Co., the nation’s biggest securities firms, jumped by the 10 percent daily limit, adding to rallies of at least 75 percent over the past month. Ping An Insurance (Group) Co. jumped 6.7 percent. PetroChina Co. surged 4 percent to a two-year high.

The Shanghai Composite rose 1.8 percent to 2,991.22 at 1:19 p.m., after briefing exceeding the 3,000 level. The CSI 300 added 2.6 percent, extending gains to 24 percent during the 12-day advance. The rally for stocks isn’t over because the government will introduce more reforms, valuations are cheap and there are expectations of more policy easing, said ABN Amro Private Banking’s Daphne Roth.

“There’s a lot of buying from retail investors,” said Roth, head of Asian equity research at ABN Amro, which oversees about $230 billion. “Short term, if I look at the technicals, it’s still powering ahead. I expect it to rise for the rest of the year. For the mid-to-long term, we are still positive.”

The Shanghai Composite’s 24 percent rally over the past month, the most among 93 global indexes tracked by Bloomberg, is spurring investors to open share accounts at the fastest pace in three years and boosting turnover to record highs. The value of shares that changed hands on the Shanghai and Shenzhen stock exchanges surged above 1 trillion yuan ($163 billion) for the first time on Dec. 5.

Trade Data

The Hang Seng China Enterprises Index jumped 1.8 percent today, while the Hang Seng Indexclimbed 0.3 percent. Trading remained volatile after the Shanghai index posted the biggest price swings in four years on Dec. 5. The measure’s 30-day volatility approached a 13-month high, while trading volumes were 80 percent above the 30-day average, according to data compiled by Bloomberg.

The CSI 300 jumped 11 percent last week, while the Shanghai index climbed 9.5 percent, the most since 2009, amid speculation the government will lower interest rates or lenders’ reserve-requirement ratios to support economic growth. Data today showed exports climbing 4.7 percent in November, trailing the estimate for an 8 percent gain. Imports fell 6.7 percent, compared with the forecast for a 3.8 percent advance. The trade surplus expanded to $54.47 billion.

“There are expectations for further rate cuts,” Roth said. “This is good for companies with a lot of gearing.”

Financials Jump

Brokerages’ valuations have surged to their highest level in more than four years as Shanghai’s surging stock market improves the prospects for trading revenue. The Bloomberg Intelligence China A-Share Institutional Brokerage index, which tracks Citic Securities and 21 of its peers, climbed 55 percent in the two weeks to Dec. 5, pushing its valuation to 4.3 times its book value. That’s the highest level since May 2010.

“The surging trading volumes will almost all translate into profit” for brokerages, said Zheng Chunming, a Shanghai-based analyst at Capital Securities Corp.

Citic Securities and Haitong Securities were also the two biggest gainers in Hong Kong, rallying at least 8.9 percent. Brokerages are set for a “sweet spot” on a pilot stock options trading program, according to Goldman Sachs Group Inc. The program may boost investor appetite for large-cap stocks including financials, Goldman Sachs said.

China’s stocks may rise further in the medium term, fueled by asset allocation demand from investors as money flows out of the property market and trust products, Alexandre Werno, Shanghai-based executive vice general manager of Fortune SG Fund Management, said in an e-mail today.

CSRC Caution

The stocks surge also spurred the nation’s securities regulator to caution investors about the risks of investing. Illegal activities including stock manipulation have recently been “raising their head” and investors should invest rationally, Deng Ge, a spokesman for the CSRC, said in a Dec. 5 statement on the agency’s website. A stable market is important for the economy, Ge said.

“They are trying to warn people from getting too far into buying into sentiment,” Paul Christopher, the St. Louis-based chief international investment strategist at Wells Fargo Advisors LLC, which oversees $1.4 trillion, said by phone on Dec. 5. “It is difficult to know how long the market enthusiasm will last, but when it is disconnected from the fundamentals, there has to be a correction back to the reality.”

Source: Bloomberg – Shanghai Composite Index Breaks 3,000 for First Time Since 2011

---