By the Financial Times
Recent market rally has a different set of drivers from the 2015 boom and bust
Evidence is mounting that there is something new about this latest rally, which means it could have much further to run. It is worth considering whether this time really could be different.
First, margin financing remains well below 2015 levels and as a share of overall trading in the A-share market it is at one of its lowest levels. As long as the influx reflects increased risk appetite and not a surge in borrowing, Beijing has little reason to cut it short, especially at a time when debt-for-equity swaps have emerged as the preferred method to clean up bad loans and reduce leverage in the economy.
The second big change is President Xi Jinping’s determination to halt property inflation.
The third big difference between 2015 and 2020 is the opening up of China’s financial markets to foreign competition — and the improved governance and risk assessment this will gradually bring with it.
Importantly, too, China is now included in MSCI’s widely followed emerging markets index. Whatever your views on the country, it is a market that can no longer be ignored.