Shanghai Rallies, Recoups Most of Thursday's Drop

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Includes: CAF, FXI
by: Steven Towns

Stocks rose throughout most of Asia (ex-Japan) on Friday, paced by a 4.6% advance in Shanghai, the biggest single-day rise in six months. Trading volume recovered after a sizable decline in turnover amidst the latest pullback. Buyers returned, reportedly on speculation the government will take measures to support the market after benchmark indices fell for a third week, according to Bloomberg. Shanghai-Composite-chart-07-05-07 In Thursday trading however, the Shanghai Composite dropped 5.25% on continued concerns of possible Beijing/PBoC intervention to slow capital flows into equities. There have also been growing concerns of robust IPO activity creating a liquidity crunch. The Shanghai Composite has peaked twice in recent months and is still down double-digits from its June 19th high. A local investment manager in Shanghai explained, "Many of us rushed in for bargain-hunting as many stocks, including big-cap ones, have fallen to levels we find attractive to buy." Bespoke Investment Group noted Thursday that the components of the Shanghai Composite were trading at a lower trailing p/e multiple at 37.9, than those of the Nasdaq at 40.1.

Sources: Bloomberg, MarketWatch
Commentary: Shanghai Composite Completes Double Top: Valuation Now Cheaper Than NasdaqShanghai Composite: Dip Buyers Quick To Step In On Any DeclinesChina Readies Overseas Investment Fund
Stocks/ETFs to watch: Morgan Stanley China A (NYSE:CAF), iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI), PowerShares Golden Dragon Halter USX China Portfolio (NASDAQ:PGJ)

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