Chinese equities jumped again on Monday, extending a liquidity-fueled rally that analysts say is showing early signs of euphoria in certain corners of the market, according to Bloomberg.
The benchmark CSI 300 Index climbed 2.1%, building on its best week since November, while combined turnover on the Shanghai and Shenzhen exchanges hit 3.1 trillion yuan ($433 billion), the second-highest level on record. Technology stocks led the charge, with property shares also benefiting from signs of increased policy support.
Investors are betting the rally has room to run, buoyed by capital rotation into equities, optimism over DeepSeek’s updated model, and expectations that authorities will maintain market sentiment ahead of China’s military parade on Sept. 3. Yet with key benchmarks now up more than 20% from this year’s lows, some analysts warn of overheating.
Macquarie Group economists, including Larry Hu, wrote in a Friday note cited by Bloomberg that “the stock rally reflects abundant liquidity rather than improved fundamentals.” They added that under such conditions, investors are more willing to give “thematic plays the benefit of the doubt,” making liquidity indicators a critical signal to watch.
Policy support in the property sector has added fuel to the rally. Shanghai recently eased home-buying rules, allowing eligible residents to purchase an unlimited number of homes in the outer suburbs. Shares of developers like China Vanke Co. surged as much as 10% on the news.
HSBC Qianhai analysts, led by Steven Sun, highlighted that “abundant domestic liquidity from deposit migration, fund issuance, and insurance fund buying” is supporting the rally. They also pointed to AI and technology as key investment themes that are driving upward revisions to Chinese benchmark targets.
However, market dislocations are becoming evident. Over the past month, onshore stocks have added nearly $1 trillion in market value, with the CSI 300 reaching a three-year high and the Shanghai Composite hitting levels not seen in a decade. The 14-day relative strength index on the Shanghai Composite stood at 88 on Monday, signaling overbought conditions.
ETFs focused on China’s tech and chip sectors are also seeing unusual premiums. For example, the CPIC SSE STAR Chip Design Thematic ETF’s premium jumped to a record 6.2%, far above its historical average of 0.1%, driven by heavy gains in individual stocks like Cambricon Technologies Corp. and Hygon Information Technology Co. Both shares rose by their 20% daily limit on Friday and continued strong on Monday.
“This shows a mismatch between the value and the price of some Star 50 stocks,” said Huang Huiming, fund manager at Nanjing Jing Heng Investment Management Co., according to Bloomberg. “Many are overbought, but sentiment is the dominant factor, so these heated levels could persist for days.”
