Shanghai Composite Index Rallies Indicating China's Growth Slump Bottom

Shanghai Composite Index
Employees work on Baojun RS-5 cars at a final assembly plant (Photo: Reuters)

The Shanghai Stock Exchange index for A and B shares rallied for a second day, hitting its one-year high. The increase in China's benchmark gauge grew at a pace well above what analysts had previously estimated, further indicating a clear road to recovery for the world's second largest economy.

At the close of trading on Wednesday, the Shanghai Composite Index had increased by around 0.3 percent, or 9.52 points. Index prices closed at 3,263.12 at the end of the trading day, reaching its highest level since March of last year.

The rally was partly instigated by gains made by vehicle manufacturing firms as investors bet on the government's new plans to ease licensing controls that should drive energy-vehicle production and sales in the coming years.

Among the different automotive industry firms on the index, companies such as FAW Car, Dongfeng Automobile, and BYD were the biggest gainers. All of these companies had reached the 10 percent daily limit on the trading day. Shanghai-based SAIC Motor also contributed with a 6 percent gain.

Meanwhile, Hong Kong's Hang Seng Index barely moved throughout the week's trading.

Taiwanese firms also rallied, with Foxconn Industrial Internet gaining 10 percent. The increase was partly due to the company's founder Terry Gou announcing his bid for the Taiwanese presidency. Taipei-based firm Hon Hai Percision Industry also gained more than 2.1 percent, while Foxconn Technology gained 1.1 percent.

According to the National Bureau of Statistics bureau, China's economy had somewhat beaten previous growth forecasts for the first quarter with a recorded 6.4 percent growth. Initial consensus projections had the growth pegged at 6.3 percent. Apart from the gains in the auto manufacturing sector, several key components also contributed. This included figures from the industrial and retail sales sectors, which also exceeded analysts' estimates.

The figures likely resulted in convincing traders that the economic growth slump had already bottomed, sending overnight repurchase rates to a four-year high during Wednesday's session. According to JPMorgan Asset Management strategist, Tai Hui, he believes that China's economic growth has bottomed out and the momentum in Wednesday's trading will likely continue in the months to follow. Tai also stated that the People's Bank of China may adopt a more lenient stance towards cutting required reserve ratios.

In the first quarter of this year, China's Shanghai Composite Index has increased by around 31 percent. This makes it one of the best performing equity benchmarks in the world this year. 

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