China’s Most Speculative Stocks Rally to Highest in Four Years

(Bloomberg) -- China's equity traders are chasing the bull market in China's tech-heavy ChiNext Index, sending the gauge to a four-year high.

The index rose 2.4% on Friday to its highest level since April 2016, on volume that was 43% higher than the three-month average. After gaining 5.1% this week, the measure is trading at the highest level in three years versus a gauge of large caps. It's up 27% since its March low, with its relative-strength index rising to overbought levels.

The gains signal bullish momentum may be returning to China's stock market, after a lack of conviction meant Chinese benchmarks lagged most of the world in May. As a market that's driven by liquidity and where leverage remains rampant, the ChiNext is often a barometer of shifts in sentiment onshore. Investors may also be heartened by news Friday that China plans to step up buying of American farm goods. That broadly boosted China's stocks and currency.

Policy makers last week unveiled a series of rule changes for the ChiNext venue, including doubling daily price limits for all stocks, a streamlined process for listing applications and scrapping price caps altogether for stocks in their first five days of trading. Companies were invited to apply for initial public offerings on the board from Monday.

Also helping sentiment is China's push with a six-year, $1.4 trillion plan it calls “new infrastructure” that covers a range of areas, including 5G wireless networks, autonomous driving and automated factories. Some ChiNext stocks exposed to these businesses rose on Friday, with electric-car battery maker Contemporary Amperex Technology Co. gaining 4.4%.

The CSI 300 Index rose 1.3% Friday to its highest close since March 6, putting the week's advance at 2.4%. The yuan rose 0.16% to 7.0768 a dollar as of 3:20 p.m. in Shanghai, in line to erase a drop for the week.

©2020 Bloomberg L.P.

With assistance from Bloomberg

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