The Weekly Brief (13 April 2015)Contributor Global Markets Insights Strategy Team
The year of the Sheep is characterised as one of promise and prosperity, this seems to be accurate when looking at the equity market – the Shanghai Composite index has gained 25% this year despite a slowing economy.
The surge in equities has less to do with growth and more to do with liquidity and valuations. The challenging economic outlook is leading to a case of ‘bad news is good news’ for Chinese equities. Sentiment is spilling over into the international market via the Hong Kong-Shanghai Stock Connect as investors look for arbitrage opportunities for dual-listed companies. The pace of the gain in Chinese equities is alarming but with further policy easing likely and valuations that remain unchallenging, this may be the sheep with the golden fleece.
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