China Stocks Jump Most in Three Weeks on Market Support Prospect
Comment of the Day

September 27 2012

Commentary by David Fuller

China Stocks Jump Most in Three Weeks on Market Support Prospect

This was today's major financial news item and it certainly helped to check the reaction in stock markets
China's stocks surged in the afternoon after the Shanghai Securities News, operated by the Xinhua News Agency, said there was speculation the CSRC would announce 10 measures to boost equities while Zheshang Securities Co. said there was market talk the regulator might suspend IPOs. Citic Securities Co. (600030) and China Shenhua Energy Co. led a rally for brokerages and energy producers. China's markets will be shut next week for holidays.

"Stocks are up because of the speculation that there's an announcement about IPO reform later at 4 p.m.," said Wei Wei, an analyst at West China Securities Co. in Shanghai. "Even if it is true, it will be a short-term rally because the main issue is economic growth. After reaching new lows yesterday, investors are also finding excuses to buy today and make quick profit before the last day of trading tomorrow."

David Fuller's view The rally was timely, coming on the heels of an edgy and erratic period for China, including the not always behind the scenes jockeying for power by the next generation of political leaders, the 'disappearance' of heir apparent Xi Jinping for over two weeks, military posturing in the South China and East China Seas, and particularly the aggressive and destructive demonstrations and attacks on Japanese businesses in China.

China's transition from a predominantly export driven economy to one that is more consumer based became more difficult due to economic slowdowns in the USA and particularly Europe. This has been reflected by the underperformance of mainland China's stock market (weekly & daily), which in turn has had a negative leash effect on other Asian markets and beyond.

Fullermoney maintains that China's stock market is technically oversold and more undervalued than we have seen for a long time, although valuations must be considered against the background of declining corporate profits. The two big upward dynamics on 7th September and today indicate a bottoming out process even though the earlier rebound was not maintained and today's action requires upside follow through to indicate that demand is regaining the upper hand beyond temporary short covering.

A stronger A-Shares market would also indicate that confidence in China's slowing economy was improving. That would eventually lift both commercial and investor sentiment well beyond China. Meanwhile, the Hong Kong (weekly & daily) stock market has benefited from the global rally led by Wall Street.

(See also Hugh Young item below and Eoin's comments on China.)

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