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Shanghai index hits 7-year high

Updated: Jun 6,2015 10:23 AM     China Daily

China’s stock market hit a seven-year high on June 5 as the benchmark Shanghai Composite Index rose above 5,000.

Analysts said the market will consolidate at this level, but faces “bigger volatility” in coming weeks.

The index rose by 1.54 percent to close at 5,023.1 on turnover of 1.23 trillion yuan ($196.8 billion), up slightly from 1.05 trillion yuan on June 4.

It had witnessed bullish growth since 2006 and reached 6,000 by late 2007, before falling below 5,000 early the following year when the worldwide financial crisis occurred. It had never returned to this level before June 5.

The Shenzhen Composite Index rose by 0.85 percent on June 5, while China’s Nasdaq-style ChiNext Index in Shenzhen retreated by 1.46 percent. Turnover in Shen-zhen also surpassed 1 trillion yuan.

Shares in traditional cyclical industries including construction, transportation, steel and cement manufacturing, nonferrous metals and real estate led the advance on June 5, with analysts saying the blue chips are likely to gain more ground.

Li Shaojun, a strategist at Minsheng Securities, said, “There is a slim chance of the market going wildly bullish from this level, as the authorities are regulating it by controlling liquidity, introducing more new listings and tightening supervision.

“However, we still believe it will advance, but the pace will slow and there will be bigger volatility.”

Li said investors’ major concerns have focused on the reviving property market draining capital from the stock market, and on whether the central government will change its stance on the equity market. But such an influence would not be sufficient to result in a bear market, he added.

However, a rising number of investors have become more cautious after the benchmark index passed above 5,000.

Eric Zhao, a private equity fund analyst in Shanghai, said, “We should notice that short positions have piled up in the past week.”

Short selling, also known as shorting or going short, is the practice of selling securities or other financial instruments that are not currently owned, and subsequently repurchasing them.

Bill Gross, a famed shorter and former Pacific Investment Management Co fund manager, said on June 3 that he is keeping an eye on the Shenzhen index.

Zhao added, “Gross said Shenzhen has become his latest short target. It is an alert.”

This year, the Shanghai Composite Index-the most eye-catching market globally-has risen by 55 percent, while the ChiNext has seen a 165 percent gain.

According to EPFR Global, which provides fund-flow and asset-allocation data, Chinese equity funds absorbed more than $4 billion from overseas investors in a single week last month. The amount was more than double the previous record seen in the second quarter of 2008.