Markets are surging globally today, and experts say that the dramatic pop in the Chinese stock market and related ETFs is due to media encouragement, which includes a view that central banks will bolster markets.
Much like the purported effect that the Federal Reserve’s stimulus plan has had on U.S. markets, Chinese markets are being supported by their own media. A front-page editorial in state-owned China Securities Journal is accredited with spurring a strong rally in Chinese markets overnight that has disseminated to equities globally. Shanghai stocks surged 5.7% after the publication suggested investors should herald the “wealth effect of the capital markets” and the future of a “healthy bull market.”
Like the Robinhood investors who have supposedly help to drive equities higher in the United States recently, individual investors seemed to be key in what looked to some traders to be “melt-up” Monday, where stocks spike dramatically. The CSI 300 index of Shanghai and Shenzhen listed shares climbed nearly 6%, to a 5-year high. Hong Kong stocks popped by 3.8%.
“There’s quite a long history of policymakers using the media to drive up the market. It doesn’t always end very well,” said Mark Williams, chief Asia economist at Capital Economics. “We saw that back in 2015, exactly the same statements then. They tried to push the market higher. It worked for a while and then the market collapsed.”
Williams said the investors who rushed into the mainland markets were awarded a green light.
“Right now, it’s rational for investors to jump into the market because policymakers are telling them the market will go up and it probably will for a while,” said Williams, adding it’s likely to be unstable.
Like the U.S., China’s economy still in unstable and is challenged by a number of issues including trade concerns with the U.S. and building pressure as the economies head towards a decoupling. But in the short term, the prospect of a more robust China is affecting other markets, generating sentiment for global trade.
“The economy has been bouncing back after the coronavirus,” Williams said. “I think China will be doing better than most of the world, but the global economy is in a bad state.”
Boockvar said there may be some justification for the gains in Chinese markets.
“International stock markets have so dramatically underperformed U.S. markets for the past 10 plus years,” said Boockvar. “You look at the Shanghai composite and it’s still down more than 50% from its 2007 high. You can talk about the individual investors…but maybe it’s possible you start to get some catch-up.”
A number of Chinese ETFs are jumping on Monday, with the gains of as much as 16%. For investors looking to allocate to Chinese stocks, here are so of those high-flying ETFs:
- Invesco China Technology ETF (NYSEArca: CQQQ): CQQQ is based on the AlphaShares China Technology Index, which is designed to measure the performance of the investable universe of publicly-traded information technology companies open to foreign investment that are based in mainland China, Hong Kong or Macau.
- Global X MSCI China Information Technology ETF (CHIK): CHIK tries to reflect the performance of the large- and mid-capitalization segments of the MSCI China Index that are classified in the Information Technology Sector as per the Global Industry Classification System.
- KraneShares CSI China Internet Fund (NasdaqGM: KWEB): KWEB tracks a portfolio of Chinese internet and internet-related companies. The portfolio includes Chinese internet companies that provide similar services as Google, Facebook, Twitter, eBay, and Amazon.
For more market trends, visit ETF Trends.