A money-supply metric is signalling the same liquidity environment that was seen before the two biggest-ever rallies in Chinese stocks, suggesting that the current bull run has more room, according to Nomura Holdings.
The spread between M2 growth and aggregate social financing growth turned positive in August after starting to rise in March, indicating improved liquidity for equities, analysts led by Jin Song and Ting Gao at the Japanese brokerage firm said in a report on Tuesday. M2, referring to all term and demand deposits, is a proxy for money supply, while aggregate social financing represents demand for capital in the real economy, the report said.
The phenomenon also occurred in the run-up to the epic bull markets seen in 2005 and 2015, when the Shanghai Composite Index surged sixfold and more than doubled, respectively, the analysts said.
“A continued rise in this spread would likely signal sustained strengthening in the equity market’s liquidity environment,” Song and Gao wrote in the report.
