China's main stock index surged over 2 percent to a fresh all-time high on Monday, led by heavily weighted financial and steel shares, despite an interest rate hike announced by the central bank after the close on Friday.
The 0.27 percentage-point rate hike, after a jump in August consumer price inflation to a 10-year high, was smaller than the 0.54 percentage-point rise which some investors had feared, and which the central bank might have chosen if it had been determined to rein in asset prices by cooling the stock market.
Also, investors were encouraged by the market's strength despite a temporary drain of money to a record initial public offer of shares in Shanghai by China Construction Bank, and to two smaller IPOs in Shenzhen. When money now tied up by those IPOs returns to the market late this week, it may push shares up further, traders said.
The Shanghai Composite Index closed up 2.06 percent at 5,421.392 points, after hitting an all-time, intra-day high of 5,427.171. That eclipsed its previous record high of 5,412.319, hit on September 6, and brought its gains so far this year to 103 percent. Gaining Shanghai stocks far outnumbered losers by 718 to 120, as over 30 Shanghai shares rose their 10 percent daily limits.
However, turnover in Shanghai A shares remained modest at 165.4 billion yuan ($22.0 billion) against Friday's 149.2 billion, partly because a lot of money was tied up in the IPOs. The drain of money to the IPOs "is a challenge for the market and it shows how ample the money available is. The market will set a new record soon, even though some expect another rate hike as soon as in coming weeks because of the pressure of inflation," said analyst Zhang Yanbing at Zheshang Securities.
Some institutions have been cutting back their exposure this month because of concern that the market is overvalued. Zhang Qi, analyst at Haitong Securities, said a 3.23 percent jump in blue chip Baoshan Iron & Steel on Monday, despite a lack of concrete fresh news on the stock, was bewildering.
"Some shares are getting ahead of themselves in terms of the market's expectations for their earnings," he said, adding that given the likelihood of more monetary tightening this year, the index was likely to stay in a 5,000-5,500 range this month. But some traders think the market's momentum is too strong to be restrained by valuation worries. They believe 6,000 points could be hit in the weeks after a weeklong holiday at the start of October. A few are talking of 6,500 being hit this year.
Financial shares were strong on Monday, led up by China Life, which jumped 3.32 percent to 55.04 yuan. Airline shares soared in the afternoon, led by China Eastern Airlines, up 10 percent to 19.14 yuan and nearing a 20 yuan target set by some traders. Air China shot up 7.67 percent to 24.98 yuan.
Many Shanghai A shares outperformed their Hong Kong counterparts, another sign that Chinese investors were again focusing on ample supplies of money in the domestic market rather than on A shares' high valuations relative to H shares.
Shipper COSCO Holdings' H shares slipped 0.74 percent to HK$20.00 in Hong Kong after Singapore state investment agency Temasek sold HK$809 million of shares in it, becoming the latest big foreign investor to take profits on its stake in a Chinese blue chip.