Shanghai Composite Index hitting new highs

After years of bearish sentiments among Chinese investors, the Shanghai Composite Index seems to be picking up again and rises to highest level since August 2011.

The revived local bullish sentiments seem to be driven by recent interest rate cuts by the PBOC and the industrial sectors’ hopes for increased investment. Fresh capital inflows from the recently opened Stock Connect program, which gives Hong Kong investors access to Chinese A-shares, has most certainly contributed to the relatively fast rise in November. A few weeks back we estimated that the Shanghai stock market would offer significant upside in the long term for Hong Kong investors due to cheap valuations that Shanghai equities offer and is now yielding results.

Insiders seem to think that the recent surge in Shanghai equities is not due to short-term speculative behaviour and are confident that Shanghai equities will continue to grow in value. After years of Chinese stock markets trailing GDP, the Chinese government has introduced several policies to bring Chinese stock markets back to life, which now seems to be paying off.