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China stocks soar in record turnover

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Bull run driven by government policy, state money

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Investors rush to open accounts, borrow money to trade

By Samuel Shen and Summer Zhen

SHANGHAI/HONG KONG, Sept 30 (Reuters) - Animal spirits

are back in China's stock market as investors rush into

equities, galvanized by Beijing's policy bonanza and driven by

fear of missing out on what some see as a rally of historic

intensity.

Brokerages are bustling with retail clients and a burst of

orders is jamming trading systems as investors rotate money out

of bonds and deposits into stocks, leading to an explosion in

stock turnover and a jump in yields.

"Deposit rates are too low, and real estate investment is no

longer safe," said 30-year-old office worker Darren Wang, who

started buying stocks using borrowed money.

"There's no other way to be rich other than redoubling bets

on stocks. The market craze you see this time could be

unprecedented."

Stocks have endured three years of gloom as economic

activity struggled to return to pre-pandemic buoyancy while a

debt crisis among property developers rippled through markets.

That gloom suddenly turned into euphoria last week as the

blue-chip CSI300 Index surged 16% for its best week

since 1998, after the government announced a volley of stimulus

including interest rate cuts and a $114 billion war chest to

boost share prices.

Many of the policies are yet to be implemented and there is

no guarantee they can fundamentally improve business conditions

or cure economic illnesses, including the prolonged property

crisis and anaemic consumption. Even so, investors said they are

following the money.

"Life has been tough for so long and finally it's time to

make some money," said Wen Hao, a manager at a tech startup in

Hangzhou who bought energy stocks on Monday.

He drew parallels to the bull run of 2015 when Shanghai's

stock benchmark doubled in just six months, citing huge sums of

"state-backed money on their way into the stock market".

The central bank last week unveiled a swap program initially

worth 500 billion yuan ($71.30 billion) to fund stock purchases

by brokers, funds and insurers. It will also create a 300

billion yuan re-lending facility to fund share buy-backs by

listed companies. Both schemes are set to be expanded.

MARKET SURGE

China's CSI300 Index surged more than 8% on Monday,

extending last week's 16% jump. Shanghai stocks shot up

more than 7% while Shenzhen shares soared more than 10%,

with combined turnover of 2.6 trillion yuan exceeding the bull

run a decade ago.

"The 2014-15 bull run was funded by illegal margin

financing. This time, the central bank is offering the

leverage," said a hedge fund manager who was not authorised to

speak with the media so declined to be identified.

"Investors are rushing into stocks because there's state

backing," the manager said, adding that difficulty making macro

economic projections means the rally is more about liquidity and

mood than fundamental conditions or corporate prospects.

Signalling official assent for the rally, the China

Securities Journal said in an editorial on Monday that reviving

stocks and boosting investor confidence will aid the country's

economic recovery, breaking a vicious cycle of curbed investment

and damaged sentiment.

Brokerages nationwide, which were quiet just a week ago, are

now brimming with investors eager to open accounts or borrow

money to trade. Such is the demand that clearing services were

unusually open at the weekend approving new accounts.

Guotai Junan Securities has arranged additional staff at

branches to handle surging account opening requests for the

upcoming National Day golden week holiday and to cover

non-working hours, showed an internal notice seen by Reuters.

Guotai Junan Securities did not immediately reply to

Reuters' request for comment.

Zion Zhong, a customer manager at Citic brokerage's Suzhou

branch, said the margin financing business has suddenly become

busy.

Another manager at a Citic outlet in Shanghai also described

a surge in business activity.

"More people are opening stock accounts; more queries about

margin financing... We're many times busier than previously,"

the manager said.

The sudden surge in buy orders triggered transaction delays

on Friday at Shanghai's stock exchange. The bourse conducted

tests over the weekend to ensure network reliability.

ROTATION

In a sign that money is rotating out of safer assets,

China's 30-year treasury bond futures hit a two-month low on

Monday after slumping 3.6% last week - their worst-ever week.

"A money migration of epic scale is coming - trillions are

shifting out of bond funds, wealth management and other

fixed-income products, into equities," Zhao Jian, head of

Atlantis Finance Research Institute, wrote in a client note on

Sunday.

Three years of bear market has fostered tens of millions of

short-term investors who yearn to have their money back, so "the

bull run will power ahead with few decent corrections," Zhao

said, predicting many will end up out of pocket when the market

inevitably turns.

Veteran individual trader Wu Jie, 48, said he felt

bewildered by the sudden change of mood.

"The economy remains in bad shape," said Wu, who is

currently light in his stock position.

"But if you look at the trading volume, the rally will

likely be sustained. I have cash ready, and I'm waiting for a

major correction so that I can get in."

($1 = 7.0125 Chinese yuan renminbi)