Key Takeaways:
China’s stock market surged to a new record on Tuesday, with the Wind All-A Index and the ChiNext Index both closing at all-time highs, driven by a powerful combination of policy support, a boom in artificial intelligence, and a pivotal meeting between US and Chinese leaders.
"Short-term, we must guard against a rise in market volatility," analysts at China International Capital Corp. (CICC) wrote in a note, pointing to the potential for profit-taking. The firm highlighted that the daily turnover rate, based on free-float market capitalization, has once again climbed above 5 percent, a level that has historically preceded market pullbacks.
The rally has seen the Wind All-A index climb 88 percent since what CICC terms a market "turning point" in September 2024. The market's daily turnover reached ¥3.56 trillion on May 11. The recent leg-up has been rapid, with the Wind All-A gaining 17.1 percent and the growth-heavy ChiNext Index rising 24.8 percent since late March. The advance has been led by technology sectors, with communications and electronics shares jumping more than 45 percent. This reflects a broader AI-driven boom, exemplified by Tencent's recent report of a 20 percent acceleration in advertising revenue growth, which it credited to an upgraded AI-driven recommendation model.
Despite the warnings of short-term overheating, CICC stated that the market's medium-term "slow bull market" trend remains intact, supported by fundamental improvements rather than just valuation expansion. The firm pointed to a late-April Politburo meeting that emphasized "stabilizing and enhancing capital market confidence" and improving corporate earnings as foundational supports. Investors are now looking ahead to the mid-year earnings reporting season in July and August for further validation.
For now, the market is focused on several concurrent tailwinds. A state visit to Beijing by the U.S. president from May 13-15 has improved global risk appetite. Domestically, CICC recommends investors focus on two main themes: high-growth technology sectors like AI infrastructure and innovative medicine, and cyclical sectors poised for a rebound, including petrochemicals, engineering machinery, and power grid equipment.
This article is for informational purposes only and does not constitute investment advice.
