By Tom Westbrook and Samuel Shen
SHANGHAI/SINGAPORE (Reuters) – Speculative fever in Chinese stocks is running red hot and catching the eye of some global funds, who figure local money is price following into market segments sheltered from tariffs and more likely to ride an eventual economic recovery.
A series of economic stimulus pledges by China in September unleashed the biggest rally in Hong Kong shares in a generation and sent mainland stocks to two-year highs.
Nevertheless, the following lack of a splashy spending centrepiece tempered the euphoria as many big-time investors cashed out fairly than wait for a more patient revival, especially as President-elect Donald Trump installs China hawks in top U.S. departments.
Yet while Hong Kong shares have recoiled, mainland stocks have switched gears and the money streaming in from household savings accounts is highlighting the markets’ hottest pockets.
“Money would rush into whatever stocks are within the speculative limelight,” said Lu Delong, a retail investor in northeast China who said he has 2 million yuan ($275,000) in stocks and made a 40% profit since late September.
He bet on tech shares gaining as China insulates them from possible U.S. restrictions, buying China Great Wall Technology Group and Huawei supplier Visionox Technology, which have doubled since late September.
“For tech stocks, innovation can’t be proved unsuccessful in early stages, thus creating room for speculation,” he said.
The speculative trade has pushed outstanding margin financing, or the cash borrowed from stockbrokers for stock buying, to a nine-year high of 1.85 trillion yuan ($256 billion), in response to data vendor Datayes.
Average every day volume for the Shanghai Composite has run at 2-1/2 times the ten-year average for the past two months and price moves point to much more motion on the smaller end.
The BSE 50 Index of start-ups listed in Beijing is up 112% since late September, compared with the 12% gain left for the Shanghai Composite after its blistering rally.
“Speculative money and retail investors who don’t care about fundamentals remain feverish,” said Li Bei, founding father of Shanghai Banxia Investment Management Centre, in a letter to investors.
Still, she increased her own net stock position to a nine-month high of nearly 50% in September and is targeted on state-owned construction firms and the property sector, which has collapsed in recent times and is beginning to attract bets on a recovery.
Fervour extends into derivatives, with options bets on rising prices also surging, in response to David Wei, general manager of Shenzhen Chengyuan Investment Consulting Co, which helps investors buy such products from brokerages.