The Shanghai Composite Stock Market Index gained in 7 of the last 8 trading sessions, up about 7%. Why is the chronically anemic stock market suddenly on a tear?
Of course the concern over China’s hard landing is easing. China reported its GDP grew at 7.5% in the second quarter and manufacturing in July is at 18-month high.
But more importantly, starting October, mainland investors will be allowed to trade stocks in Hong Kong and vice versa, which means the discount gap between Shanghai and Hong Kong (Shanghai’s valuations are lower) will inevitably close, giving Shanghai shares a boost. Capital Economics provided the following chart showing Shanghai is trading at the largest discount to Hong Kong since 2006