The total value of China’s stock market has climbed to a record high of more than $10tn, as the country’s accelerating economic recovery propelled it past the previous peak hit during an equities bubble five years ago.

The market capitalisation of all shares listed in Shanghai and Shenzhen hit $10.08tn as of Tuesday’s close, according to a Bloomberg estimate.

That is above the $10.05tn pinnacle hit in June 2015 immediately prior to a historic rout sparked by a crackdown on leveraged trading, which resulted in the Chinese market plunging by half.

China’s benchmark CSI 300 index has rallied by about 17 per cent this year, compared to 9 per cent for Wall Street’s S&P 500. The Shanghai and Shenzhen markets have sucked in billions of dollars from global funds partly due to optimism over the Chinese economy’s recovery from coronavirus, which has outpaced that of the US.

On Tuesday, official data showed China’s imports for September hit a record dollar amount on the back of appetite for commodities and semiconductors. The renminbi has also strengthened against the dollar in recent weeks on expectations of a Joe Biden win in November’s US presidential election and optimism over a reset in relations between the two superpowers.

Line chart of Market capitalisation (US$tn) showing China's stock market value climbs past 2015 high

Analysts said that, despite this year’s rally, Chinese stocks remain less frothy than during the bubble of 2015, when retail traders drove valuations to eye-watering heights.

“Compared to five years ago there have been some major changes,” said Bruce Pang, head of macro and strategy research at investment bank China Renaissance. Mr Pang said the use of margin lending to buy equities was far less prevalent now than in 2015, when Chinese markets rallied by more than 100 per cent before collapsing share prices triggered waves of forced selling.

Broadly, valuations for the Chinese stock market also appear more reasonable currently. The CSI 300 trades at less than 19 times its past 12 months’ earnings, compared to more than 40 at the index’s 2015 peak.

While retail investors remain a powerful force in China’s onshore stock market, Mr Pang added that the greater presence of institutional and foreign investors had helped reduce volatility. “Risk factors are actually controllable and manageable for the authorities,” he said.

Bar chart of Holdings of free-floating Chinese shares showing Institutional investors' role in China's equity market  grows

Institutional investors held more than 70 per cent of the free float of all Chinese stocks as of the end of June, China Renaissance estimated, while foreign investors owned roughly 5 per cent. Retail investors held less than a quarter, down from about half five years ago.

China’s stock market is the second largest in the world, although it remains far smaller than the US’s nearly $39tn.


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