The Shanghai Composite Index has climbed above 2,400 points. It ended the week at 2,419.78, down slightly from a seven-month high reached on Thursday. As the rallies continue, our smug self-satisfaction has increasingly turned into a smug certainty – born of a mix of jealousy and desperation – that it’s not to last. The Wall Street Journal, it seems, agrees with us. An op-ed yesterday noted that the gains continue in spite of announcement after announcement of meager first-quarter earnings at major Chinese companies.
As the global financial system continues to totter on the brink of disaster (if this is the brink, what’s beyond?), it was financial stocks – China Merchants Bank (600036.SH) and China Construction Bank (601939.SH) – keeping the index up in China. It wasn’t good news from the banks that did it. No, it was a CITIC Securities forecast suggesting they could look forward to a better second quarter.
That’s not totally without value, of course, but it still comes during an environment producing vastly more bad news than good, in which, against all odds, the SCI has risen 32.9% this year.
Perhaps China’s retail investors are looking at the long-term picture (ha!). Yes, China will probably come out of the downturn stronger than many other countries. People’s Bank of China governor Zhou Xiaochuan’s casual talk of the eventual replacement of the US dollar as a global reserve currency is based in a strong confidence in the Chinese system that seems more and more prevalent.
For the moment, however, we’re stuck in April 2009. Companies are still reporting terrible first-quarter earnings. And the Capitalist Roader Fund is staying right where it is.