• Chinese state-owned media predict "healthy bull market"
  • Shanghai Composite index has risen more than 25% since March 23
  • China-focused ETFs are surging, signs of a short squeeze
  • Markets could crash if margin trading gets out of control like in 2015

They're saying if the U.S. stock markets have the Fed, Chinese stock markets have state-owned media. After various news outlets encouraged investors to buy equities this week, indices roared higher and yield on government debt surged the most since January. There were also zero new COVID-19 cases reported in the capital Beijing on Tuesday, the location of the recent outbreaks. The Shanghai Composite index, firmly in bull market territory, closed almost 6% higher yesterday and today rose for the fifth trading day in a row. It's currently at its highest level since February 2018. 

YCharts
YCharts.

Yesterday the iShares China Large-Cap ETF (FXI) jumped 9.5%, the sharpest single-day climb since March 2009. The iShares MSCI China ETF (MCHI) closed 7.3% higher, its best performance in nine years. Susquehanna analysts said there were signs of a short squeeze. The rally is also strengthening the yuan, and it'll be interesting to see how long the government allows that to continue past the 7-dollar mark.

"Retail investors dominate China’s equity turnover on the mainland. With a closed capital account, and the government managing most other investment avenues, China’s savings surplus can really only flow into real estate or equities," explained OANDA analyst Jeffrey Halley. "It is thus, not a difficult challenge to mobilize the masses, by extolling them to 'fill their boots' with equities. The implication being, that if state media is telling them to, there is an implicit 'letter of comfort,' that the government has their back."

There's however warnings about a possible repeat of 2015, when a stock market boom was followed by a crash. The amount of leverage, or money borrowed from brokerages, in the market has crossed 1.2 trillion yuan, which Bloomberg says is the highest since late 2015. Five years ago, the Chinese government loosened restrictions on investing with borrowed money (trading on margin) and equity prices exploded. The retail rush to stocks emerged despite a slowing economy because the Chinese Communist party chose the rhetoric of "zhongguomeng," meaning Chinese dream. Read more here.