China stocks moving into bubble territory

Retail investors have shrugged off indications of a slump in the real economy, pushing the main index of Chinese stocks to a 40-month high, The Financial Times reported. Investors appear to believe that a fresh easing cycle is under way following the cut in benchmark interest rates last month by the central bank. Liu Haiying, chief economist and partner at CapitalEdge Investment Management, a Shanghai-based macro hedge fund, said that “they’ve recognized that they need to guarantee growth above the bottom line. And once that decision is made, it means more easing is coming.” Expectations that this will involve cash injections into the economy have spread from institutional to retail investors.