Xi knows what it takes to sustain China’s rally

Last week, as Chinese stocks produced their biggest gain since 2015, Lu Ting, chief China economist at Nomura Holdings, was warning investors not to forget another, more traumatic memory from that same year.

“Given the current market momentum and our tracking of sentiment on China’s social media, the risk of repeating the epic boom and bust in 2015 could rise rapidly in coming weeks,” Lu notes.

Lu adds that in a worst-case scenario, “a stock market mania would be followed by a crash, similar to what happened in 2015.” As such, he adds, “while investors might still be OK to indulge in the boom for now … we wish Beijing could be more sober.”

Yet sobriety does appear to be returning, and rather quickly. Though perhaps not Lu’s “crash” scenario, household names like JPMorgan Asset Management, HSBC Global Private Banking and Invesco Ltd. are also advising caution. Invesco, for one, worries mainland shares are “really overvalued.”

This is highly debatable, of course. Count investment giant Fidelity International among the financial giants that still see great value in mainland shares following years – and many trillions of US dollars – of losses.

Goldman Sachs Group, too. The Wall Street giant has upgraded its view of mainland shares to overweight with a 15-20% upside potential if authorities deliver as promised on stimulus measures.

As Goldman strategist Tim Moe points out, recent policy moves by Beijing “have led the market to believe that policy makers have become more concerned about taking sufficient action to curtail left-tail growth risk.”

Nor has BlackRock publicly backed away from its bullish call on Chinese shares. As its strategists wrote on October 1: “We see room to turn modestly overweight Chinese stocks in the