The record-setting rally in U.S. equities gets all the attention but China’s stock market boasts a broader rebound.
The CSI 300 Index has 79% of its members trading above their 200-day moving average, almost twice the five-year average. By contrast, the figure for the S&P 500 Index is 62%, a sign of fewer stocks buttressing the rally there. The proportion is 86% for the ChiNext Index, versus about 50% for the Nasdaq Composite.
Technology and related sectors have powered the S&P 500 to multiple highs this year but the rally has been concentrated in a handful of stocks that investors see as well-suited for a stay-at-home economy. In China, the rebound from the March lows has spread to laggards including industrials and materials, a trend that is consistent with a recuperating economy.
“Unlike other markets where funds have no choice but to stay in defensives like technology and healthcare, the gains in China are resting on hopes of sustained economic recovery, driven by not just by government spending but market demand as well,” said Liao Zongkui, an analyst at Yuekai Securities.
China’s economy gathered momentum in August as a strong industrial sector, better business confidence and a recovery in home and car sales combined to help the nation become the first globally to emerge from the Covid-19 slump.
The previously unloved utilities, materials and financial shares are among the biggest gainers on the CSI 300 Index in August, while the sub-gauges of tech and health-care stocks ended the month in the red.
“Opportunities in the old economy stocks -- energy, construction and finance -- are just beginning,” said Lu Boliang, a fund manager at ShenZhen Qianhai Daoyi Investment Holdings Co. “The outperformance of the cyclical stocks could last two or three quarters,” helping sustain the market breadth, he said.
The narrow U.S. rally reflects the chasm between the companies that benefited from the coronavirus, including technology and healthcare, and those that were hit, such as airlines. That may change once a vaccine becomes available.
For now, ShenZhen Qianhai’s Lu said he has invested about half of his assets into producers of building materials and banks in the past two months after booking profits in technology companies.“I don’t know if the gains in tech and healthcare will be completely over, but going forward the market will likely be driven by milder gains from cyclicals,” he said.
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