After enjoying a good gallop to a four-year high during the Year of the Horse, investors in Chinese stocks or funds must be wary of following the herd too blindly as they enter the Year of the Sheep, says investment platform AJ Bell.
“Hopes for wide-sweeping reforms, intervention by the People's Bank of China to boost the economy and the launch of the Hong Kong-Shanghai Connect stock market trading system have all sparked Chinese shares back into life. They could be helpful again this year but investors must take care,” says Russ Mould, AJ Bell Investment Director. “Markets are not always driven just by economic growth – if it was as simple as that Chinese stocks would not be trading at barely half of their 2007 peak – but signs of a slowdown across all three of Beijing Premier Li Keqiang's preferred indicators suggest gains in the Shanghai Composite index may be harder earned this year, even as the reform programme moves forwards.”
Notes for Editors
- According to a leaked State Department memo, Prime Minister Li prefers to look at data on demand for loans from banks, rail cargo traffic and electricity consumption rather than official GDP growth numbers.
- The rail and electricity figures suggest progress may not be as strong as the official number of 7.3% for the fourth quarter of 2014 implies, especially as the local steel price index is also weak.
- Charts are attached for all three indicators, plus the steel price, on a stand-alone basis and relative to the Shanghai Composite index.
- The Hong Kong-Shanghai Connect programme began operations last October. It enables investors in Hong Kong to trade in shares listed in mainland China and those based in China to trade in shares listed in Hong Kong and do so while settling in their domestic markets. The idea is to improve liquidity in both and quoted companies from the Chinese mainland in particular.
- The Shanghai Composite index trades at 3,222, some 54% higher than a year ago. The benchmark peaked at 5,903 on 12 October 2007.