Chinese stocks hit one-year high, ignoring global pullback
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China’s main stock market index hit a new one-year high today, signaling that investors and speculators continue to look inward at China’s growth prospects instead of worrying about the economic struggles of the developed world.
The Shanghai composite index rose 28.11 points, or 0.9%, to 3,088.37, extending its year-to-date gain to a heady 70%. That has pumped up returns of emerging-market stock mutual funds including the Matthews China fund and T. Rowe Price Emerging Markets.
‘China’s domestic demand looks quite strong, offsetting weak external demand, and that will lead the recovery story,’ Zheng Tuo, a Shanghai-based fund manager at Bank of Communications Schroder Fund Management, told Bloomberg News.
The market has been red-hot this year as investors have bet that Beijing’s $600-billion stimulus-spending plan will keep the economy advancing.
The government’s efforts to encourage more bank lending also have helped drive share prices as some of that money has been funneled into the equity market. That is reviving fears of another bubble.
The Shanghai market has been marching to its own drumbeat since the beginning of 2006. The index rocketed in ’06 and 2007, reaching a record 6,092 in October 2007. Then the market crashed, losing 65% last year. Most of that occurred before the global market meltdown last fall.
This year, investors who are looking for growth can’t help but be fixated once again on China in particular and emerging markets in general.
From Bloomberg:
Developing economies will probably expand 1.6% as a group this year and 4% in 2010, according to the International Monetary Fund. Developed nations will contract 3.8% in 2009 and have zero growth next year, the IMF forecast in its April World Economic Outlook report. ‘A lot of emerging economies came into this credit crisis with a strong build-up of reserves and they are better able to create economic stimuli from savings, rather than from borrowed money like the developed markets,’ said Hugh Hunter, head of global emerging markets at Blackfriars Asset Management in London, who manages $1.5 billion. ‘This will lead to significant outperformance of emerging markets.’
It already has. The average emerging-markets stock mutual fund is up 32.5% this year, compared with a 5% gain for the average U.S. stock fund, according to Morningstar Inc.
Still, apart from China, most emerging markets have pulled back modestly in recent weeks as Wall Street and other developed markets have stalled. Brazil’s main share index has fallen 6.5% since hitting a 2009 high on June 1. The Indian market is down 3.6% from its June high. The Russian market, heavily dependent on natural-resource stocks, is off 19.2% since June 1.
-- Tom Petruno