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The world's stock markets are so hot that even China's on a rally. Analysts say it's not over yet.

Huileng Tan   

The world's stock markets are so hot that even China's on a rally. Analysts say it's not over yet.
  • Global stock markets are hitting record highs, driven by economic optimism and potential rate cuts.
  • China's stock markets are rallying on attractive valuations and government stimulus measures.

The world's major stock markets are on a tear as indexes near and breach record highs.

The market is so hot that some analysts are even asking investors to rethink the adage "sell in May and go away" this year.

After all, 14 of the world's 20 largest stock markets have hit all-time highs recently, according to Bloomberg's count on Saturday.

The US's three major indexes were at record levels, with the Dow Jones Industrial Average closing above 40,000 for the first time on Friday. Stock markets elsewhere, including in Europe, India, and Japan, are also near or at their all-time highs.

Broadly, the MSCI ACWI Investable Market Index, which tracks large and mid-cap companies across developed and emerging markets, set a record high on Friday.

The markets are so hot that even China's stock markets — which entered 2024 in meltdown mode — are booming, too.

The CSI 300, which tracks 300 large and midsize stocks in the Shanghai and Shenzhen markets, is up 7.4% this year to date. Hong Kong's Hang Seng Index has meanwhile surged 15% so far this year.

Cheap valuations in China are attracting hot money

In general, global stocks are driven by fundamental factors such as generally rosy economies, positive corporate earnings, and potential interest rate cuts, which send money back into stocks from bonds.

But China's market rally appears to be fueled by attractive valuations after prices tanked so much over the past few years.

While there's risk in China's equity markets, given their sustained slump, it appears that some investors think it's worth the gamble — particularly since stocks elsewhere are getting expensive after an extended rally.

Andrea Cicione, the head of research at GlobalData TS Lombard, wrote in a Friday note that Chinese stocks' valuations were now broadly in line with their average before the pandemic.

In particular, investors are rebalancing their portfolios from India to China as they take profit from gains in the hot South Asian market. India's benchmark Sensex and Nifty 50 indexes have both surged about 20% in the past 12 months.

As a sign of shifting global fund flow, big names have been piling into the Chinese stock markets. They include the "Big Short" investor Michael Burry and the billionaire investor David Tepper's Appaloosa Management.

The billionaire investor Ray Dalio said in March that he was still investing in China thanks to cheap stocks.

China's market rally may have more room to run

It helps that the Chinese government has stepped up economic stimulus measures. On Friday, the government pulled out its strongest moves to address its property market crisis. Bank of America analysts wrote in a Monday note that the top-down measures were a "clear sign" that stabilizing China's embattled housing market was still a high priority for Beijing.

But Cicione warned that the stimulus was put in place precisely because there was "economic pain," as China's April economic indicators showed.

"We expect a soft patch in activity ahead before new measures aimed at boosting the economy start having an effect," Cicione said. "China equities should continue to benefit from improving consumer confidence and an export recovery driven by incremental monetary, fiscal, and property stimulus."

He said the return of investors to China's stock market had gained momentum and "likely has further to run."

Earlier this month, the LPL Financial strategist Adam Turnquist also said China's stock market bull run might continue.

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