Chinese Stocks Wrap Up Best Quarter Since 2014 With a Huge Rally

(Bloomberg) -- Friday's surge in Chinese stocks rounds up a winning quarter for the country's investors.

China's equities have outrun every other national market in the world in the three-month period. The CSI 300 Index's 29 percent rally is its best since the end of 2014, when the nation's equity bubble was forming. Apart from a Taiwanese chipmaker, a Brazilian steel producer and Latin America's largest utility, all the top 30 performers on MSCI Inc.'s emerging-market benchmark are Chinese companies.

Managing a momentum-driven investor base, where turnover is in the hands of almost 150 million retail traders, has always been a challenge for the government. China's experienced two massive bubbles in the past decade, with a tight-grip approach to tame the rally backfiring in 2015, drawing the ire of foreign investors. Analysts predict Beijing will be more successful this time in engineering a slow bull market.

“It's a critical time for the market,” said Liao Zongkui, an analyst at Lianxun Securities Co. “Investors are keeping a close eye on earnings from heavyweight companies. A good results season will be a big confidence boost, and will ensure the stock-market rally can continue.”

Winning finish

The bond market had a good three months too, with the yield on 10-year government debt falling for a second quarter toward 3 percent. Further inflows are expected in China's $13 trillion onshore debt market, about twice the size of the nation's equity market, as the bonds get added in a key global index from April 1. Global jitters -- triggered by last week's yield curve inversion in the U.S. -- fueled demand for the asset. That's after China's monetary easing boosted bond buying earlier this quarter.

The yuan also strengthened, set for its first quarterly gain in a year. For all the newsflow around trade negotiations, China's economic data-dump and the government's more detailed plans to boost growth, it's been a relatively dull month for currency traders. Historical 30-day volatility this week reached the lowest since January 2018.

Chart of the week

The rally onshore has left Hong Kong in the dust: the Shanghai Composite Index beat the Hang Seng China Enterprises Index this quarter for the first time in two years.

Catching up

Here's what else caught our eye this week:

• China's government-backed firms are being stingy.
• That mainland-Hong Kong Chinese stock premium is huge.
• Local government debt - the bomb that doesn't explode.
• Default-free bonds remain everyone's favorites.
• Cannabis craze comes to China's stocks and regulators aren't happy.
• Watch out for the canola-oil spat.
• $75 million bespoke homes for Hong Kong's super rich.
• Shares of Hong Kong developers are at record highs.
• The last time Goldman loved Moutai this much, it ended badly.

--With assistance from Tian Chen.

To contact Bloomberg News staff for this story: Sofia Horta e Costa in Hong Kong at shortaecosta@bloomberg.net;Ken Wang in Beijing at ywang1690@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Kana Nishizawa, Will Davies

©2019 Bloomberg L.P.

With assistance from Bloomberg