The surge in Chinese equity trading that coincided with market peaks in 2009 and 2010 has returned as the Shanghai Composite Index jumped to a three-year high.
The 30-day average daily value of shares changing hands on the Shanghai exchange exceeded 200 billion yuan ($32.6 billion) for the first time in four years on Nov. 25, after rising threefold in the past six months, according to data compiled by Bloomberg. Turnover last breached this level on Nov. 9, 2010, the same day the Shanghai Composite began its slide into a 38 percent bear market. The previous surge came on Aug. 7, 2009, two days after the start of a 23 percent retreat.
“It’s a good chance we’re at a market top right now,” David Cui, the China strategist at Bank of America Corp. (BAC) who’s ranked No. 1 by Institutional Investor magazine, said by phone yesterday. “Based on the experience since the global financial crisis, surging volumes each time marked a temporary top for the market.”
Jumps in trading may signal market peaks because they reflect too much investor “euphoria” toward stocks, according to Cui. The Shanghai Composite has climbed 23 percent this year, sending valuations to a 20-month high, as the city’s exchange link with Hong Kong opened the market further to foreign investors and the central bank unexpectedly cut interest rates for the first time since 2012.
Trading on the Shanghai bourse is almost twice as high as the five-year average and about 29 percent more than turnover on the New York Stock Exchange. The value of shares changing hands on the Chinese bourse climbed to a record 330.9 billion yuan on Nov. 11 and was about 316 billion yuan yesterday.
The Shanghai Composite rose 0.6 percent to 2,619.31 at 10:44 a.m. local time, with trading 53 percent higher than the 30-day average for this time of day.
