To channel a past commercial theme of retail group Marks & Spencer, this is not just any old year-end rally, this is a Shanghai-style year-end rally. Last night’s 4.3% jump in the Shanghai Stock Exchange Composite Index on sharply higher volume is equivalent to an index value increase of £100 billion (or about 1% of the market capitalisation of the whole S&P; Index) to £1.4 trillion (Renmimbi 14.4 trillion or US$ 2.3 trillion) which is quite big in anyone’s money. The index has gained 9.7% in value since bottoming on the 3rd December (that’s almost 2,100 % annualised) which compares with a net 4.9% rise since the 15th November for the S&P; 500 Index and 5.8% in the FTSE 100 Index, also since mid-November.
And the reason for all the excitement ? This year’s secretive Central Economic Work Conference held in Beijing has just concluded after three days of deliberations at which China’s leaders discuss economic strategy for the year ahead. While details of the proceedings are usually not revealed, the comments that have emerged so far suggest that the economy will still achieve reasonable growth despite the difficult global environment.
The emphasis of policy will remain on achieving and maintaining stability. So far, the new President Xi Jinping has acted as if he means business and this has sparked investors’ expectations of favourable new stimulus measures. Of course, the scope of any initiatives will need to be tempered by considerations of the potential inflation risks so this latest rally could yet fade as quickly as it appeared.
This wave of enthusiasm was enhanced by the release this morning of HSBC’s preliminary Flash Manufacturing Purchasing Mangers’ Index for December which showed a value of 50.9 against estimates of 50.8 and November’s 50.5 – the first reading to break back above the 50 level for the first time in over a year, implying growth rather than contraction. Reports suggest that much of today’s buying in the market is attributable to local investment institutions and follows the recent relaxation of investment rules for insurance companies such as Ping An in which HSBC recently sold an interest.
In sympathy, the Hang Seng Index gained 160 points or 0.7% to the 22,600 level but the reaction in Europe has been more restrained. The FTSE 100 Index is marginally lower as, surprisingly, mining issues have not rallied on the optimism in China despite stronger prices for raw materials in London. The uncertainty over the outcome of the U.S budget negotiations are still a drag on sentiment, leaving the Euro Stoxx 50 Index barely changed as we go to print. Estimates for this afternoon’s U.S. industrial production figure for November are around the 0.3 level against -0.4% for October.