Rising A-Share Stocks Signal Early Emerging Market Recovery

The Shanghai Composite Index has again topped 3000 points after languishing for more than a year. The A-share market has leapt by over 60% since January, one of the highest increases among global stock markets. The impressive rise of China’s stock market is connected to the flow back of global funds from dollar assets to emerging markets.
 
With the strong rebound, the value of the Shanghai and Shenzhen markets together has also moved back over 20 trillion yuan, hitting 20.3 trillion yuan on June 30. The average PE for listed-shares has risen 71.31% since the end of last year to 25.44.

Analysts believe the high first half performance of emerging markets has been led by US and European investors�expectations for their earlier recovery. The large rally on the A-share market is considered a sign that China’s economy will revive prior to other markets.
 
China’s PMI reached 53.2% in June, a bit over May’s 53.1%. It has continued above 50 for four straight months, indicating a preliminary recovery in manufacturing. Meanwhile, power generation in June also showed a year-on-year increase, a rare event recently. As an important leading indicator for economic rebound, it gives institutional investors a good reason to go long on the market.
 
China’s markets are again open to IPOs, which had been suspended for many months. So far this has caused no negative effects. It is reported that the Chengdu-Chongqing Highway will become the first bid-cap share to go public as a new listing.
 
About 30 companies whose IPO applications have been approved by China Securities Regulatory Commission since last year are waiting to list. Of that group, companies that plan to issue more than 100 million shares include China State Construction, Everbright Securities, the Chengdu-Chongqing High Way, and China Merchant Securities.