By Sean Geary
The Shanghai Composite (FXI) surged on Friday as China’s benchmark index recorded its largest one-day move since October 2009.
The most important exchange in Mainland China, the Shanghai Composite jumped an incredible 89 points, or 4.3%. The substantial move higher came as the result of positive data and comments from the Chinese government.
HSBC’s flash manufacturing PMI came in at 50.9 -- any number above 50 represents expansion -- a 14-month high and a notable increase over November’s 50.5 reading. This increase in manufacturing output is a leading bullish indicator, lending additional credence to the hypothesis that China will return to higher levels of growth in 2013.
As well, traders pushed the Chinese exchange higher in anticipation of an important get together of China’s top leaders this weekend, the Central Economic Working Conference, during which the country’s top brass are likely to agree on economic guidelines for 2013. Although, according to an analyst at Nomura, it doesn’t appear as if much is likely to change, Chinese investors are becoming increasingly confident in the newest regime.
As noted previously, Chinese exchanges have had a rough go of things over the past few years; even with this most recent rally, the Shanghai Composite is still down more than 50% from its 2007 highs. However, it appears as if the beleaguered index may have finally found its bottom. Since the Shanghai Composite made a low of around 1950 on Dec. 3, the market has jumped roughly 8% in less than two weeks.
While investing in stocks listed in China remains a risky proposition, Hong Kong and American-listed companies with China exposure look poised to have a massive year. Goldman Sachs has made Chinese stocks one of their top picks for 2013. A return in investor sentiment could be a boon for beaten down China stocks like Baidu (BIDU) and 51job (JOBS).
Disclosure: Author is long BIDU call spreads.