NEW YORK, Aug 25 — China’s stock market has added nearly a trillion dollars in value over the past month despite mounting economic pressures from US tariffs and a persistent property crisis.
The Shanghai Composite Index has reached a decade-high while the CSI 300 Index has surged more than 20 per cent from its yearly low, creating a stark disconnect with deteriorating economic indicators, Bloomberg reported.
Cash-rich investors seeking alternatives have fuelled the rally, but analysts from Nomura Holdings and TS Lombard warn of potential bubble formation and “irrational exuberance.”
Homin Lee of Lombard Odier cautions that the bull market cannot sustain itself if inflation remains near zero and corporate pricing power continues to weaken from sluggish domestic demand.
China’s deflationary spiral has persisted with flat consumer prices in July, producer prices falling for 34 consecutive months, and negative GDP deflator readings.
Factory activity, investment, and retail sales all disappointed in July, while Beijing’s anti-involution campaign and Trump’s tariffs cast shadows over economic growth.
Forward earnings estimates for CSI 300 companies have declined 2.5 per cent from yearly highs as intense price competition erodes profits at major firms like JD.com and Geely Automobile.
Beijing appears reluctant to deploy large-scale stimulus, preferring measured support that risks being complicated by equity gains potentially inflating a stock bubble.
Market observers note uncomfortable parallels to 2015’s boom-bust cycle, when margin trading drove stocks skyward before regulatory crackdowns triggered an epic crash.
Outstanding margin debt stands at 2.1 trillion yuan compared to 2.3 trillion yuan at the 2015 peak, with liquidity and margin balances showing strong correlations to equity gains.
Some analysts see reasons for optimism, citing measured position increases, broadening market participation, larger deposit reserves, and stronger technology companies than a decade ago.
Investment strategists remain selective, however, avoiding deflationary-impacted sectors while warning that China’s bull market represents “more of a mystery box than a conventional growth story.”