Defense-related shares on the Chinese stock market surged on Thursday, although the two markets fluctuated wildly, a phenomenon which several stock analysts said was a market response to the heightened tensions between the world’s top two economies after the US government ordered the Chinese consulate in Houston to be closed.
On Thursday, the Shanghai Composite Index edged down by 0.24 percent to close at 3,325.11 points, while the Shenzhen Component Index ended up 0.03 percent.
Aircraft carrier-related shares surged 3.87 percent, while the overall defense sector rose 1.73 percent. Radar and intelligent ammunition maker RACO saw shares surge to the trading ceiling of 10 percent.
Yang Delong, chief economist at the Shenzhen-based First Seafront Fund Management Co, told the Global Times that the surge in military shares was triggered by the US order to close the Chinese consulate in Houston.
Another stock analyst told the Global Times on condition of anonymity that the rise can be attributed to “investors’ mood fluctuations as a result of the [Houston consulate] incident.”
Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times that the impact of the consulate closure is limited on the Chinese stock market, but the pressure might build up on A shares if the diplomatic tensions continue to elevate.
The experts also refuted some US hints in the media that China’s stock markets will plunge like five years ago, although mainland stocks have surged relatively fast in the past weeks.
A commentary in The New York Times on Wednesday hinted that the Chinese stock markets will repeat what it went through in 2015 – that is, stocks will quickly surge to a very high level and then nosedive, bringing huge losses to investors.
According to the article, the collective market value on mainland stocks is hovering at the $10 trillion marker, about how much it was worth in June 2015.
However, Xi said that mainland markets are unlikely to surge to a 2015 high, which peaked at more than 5,000 points, as it is more difficult to inflate share prices compared with five years ago considering that many shares’ valuations are already elevated.
“Besides, securities violations such as over-the-counter stock trading, which was a primary reason behind the 2015 stock fluctuation, is much more subdued now with government management,” he said, adding that stock market operation is much more standardized and therefore potential risks are mitigated.
He also stressed that compared with 2015, when stocks surged a lot off the economic track, the current share price level is in line with China’s economic fundamentals.
Some domestic stock commentators, like Yang, anticipate a slow bull market ahead. But Xi said there is a possibility that mainland markets will retreat to a bearish-like state soon.
An investor watches stock performance in Shenzhen bourse. File photo: VCG
