April 22, 2015 / 3:34 AM / 3 years ago

China's bull market 'has just begun', not a bubble: People's Daily

SHANGHAI (Reuters) - China’s bull market “has just begun”, a website run by the official People’s Daily newspaper said, calling the surge in share prices a fair reflection of the country’s growth potential and denying that it was a bubble.

An investor looks back in front of computer screens showing stock information at a brokerage house in Wuhan, Hubei province April 20, 2015. REUTERS/Stringer

China’s stock market has soared about 80 percent over the past six months, even as the country’s economic growth slowed to a six-year low of 7 percent in the first quarter, raising concerns that shares may be vulnerable to a sharp correction.

But the commentary published on the website People.cn late on Tuesday defended China’s world-beating stock performance, saying that current price levels are “just the start of the bull market,” because it “has support from China’s grand development strategy and economic reforms.”

“China is a country with GDP of 10 trillion yuan ($1.61 trillion). It has a stable political environment, steady economic development and a clear goal,” it said.

“Shouldn’t blue-chips in such an economy repair their valuations to normal levels? If this is called a bubble, what sort of asset is not?”

The article argued that China’s “One Belt, One road” initiative, a plan to boost connectivity across Asia, will accelerate globalisation of China’s blue-chip companies as well as its financial institutions, and promote yuan internationalisation.

If one imagines the Chinese currency on its path to becoming a global currency, and Chinese banks going global, “the price/earnings ratio of Chinese banks is still low, and banking stocks are still undervalued”.

“The current red hot capital market is a normal reflection of such a development,” the article said.

Yet, the commentary also warned of the risks of speculative trading.

“If you treat Chinese shares as an embodiment of the ‘China Dream’, you can see huge investment opportunities. But if you treat the market as a casino, it is as dangerous as any casino in the world.”

Reporting by Samuel Shen and John Ruwitch; Editing by Kim Coghill

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