Chinese stock prices hit all-time high
Tashkent, Uzbekistan (UzDaily.com) -- On 13 October 2020, the value of shares of Chinese companies has reached a historical high. The total capitalization of companies trading on Chinese stock exchanges has reached a new all-time high of US$10.08 trillion.
According to Bloomberg, the previous record was US$10.05 trillion was established in June 2015.
Experts associate the rapid growth of the Chinese stock market with the following factors.
1) The policy of the PRC authorities to support trading in securities. The Central Bank of China since May 2020 keeps rates at the level of 3.8-4.6%, which is much higher than in the USA and the eurozone. According to the Bank of America, the yield on 10-year government bonds in China exceeds 2.5%, while the dividends of similar American securities are only 0.65-1%.
2) Strengthening the RMB exchange rate. According to the Fact Set center, in early October 2020, the yuan strengthened against the US dollar by 3.7% and is trading at 6.9 yuan per dollar. Banks Goldman Sachs and United Overseas Bank predict that the Chinese currency will strengthen to 6.5 yuan per dollar over the next year.
3) Inclusion of China in key stock indices. In September 2020, the FTSE Russell, a British stock index, has decided to include China in the world’s leading government bond index, following the lead of JPMorgan Chase & Co. and Bloomberg LP.
According to Morgan Stanley, the annual inflow of foreign capital into China’s government bonds until 2030 will be US$80-120 billion, and more than US$100 billion a year will be invested in Chinese stocks.
In addition, the relatively stable situation with COVID-19 in China and the growth of its economy have a positive effect on investor sentiment.
In general, according to experts, the recovery of the Chinese economy encourages foreign investors to invest in the country’s stocks and bonds, which raises their value. It is noted that against the background of the strengthening of the national currency of the PRC, investors who hold Chinese government bonds can benefit not only from the difference in nominal yields, but also from the growth of the yuan exchange rate.