China’s stock markets have surged to their highest levels in a decade, but the rally risks creating a bubble while offering little support to the slowing economy, according to historical lessons. 
Nomura compared the recent rally with 2014-15 when the Shanghai index shot up 150% before collapsing 40% in a matter of weeks.

The Japanese investment bank cautioned that the rally may have even less impact on growth than the 2014-15 boom, which ended in a painful crash and did little to lift consumption or investment.
“The stock boom has the potential to lead to irrational exuberance, an increase in leverage and the formation of a bubble. For Beijing, rolling [out] high-profile measures such as rate and reserve ratio cuts could fan the flames and inflate a stock market bubble, but doing nothing risks worsening the slowdown.”
This time the boost could be even smaller owing to structural headwinds.

For reasons, the bank cited Beijing’s tighter grip on IPO financing, which curtails wealth creation, and the housing market’s prolonged slump, which limits the wealth effect for households. Government-imposed pay cuts and lower brokerage commission fees also reduced income gains for financial professionals.
China’s property sector, once the main engine of growth, is now in its fifth year of contraction. New home sales from the top 100 developers have plunged more than 70% since 2021, while average home prices have fallen about 30% nationwide.
scmp.com/business/china
Nomura compared the recent rally with 2014-15 when the Shanghai index shot up 150% before collapsing 40% in a matter of weeks.

The Japanese investment bank cautioned that the rally may have even less impact on growth than the 2014-15 boom, which ended in a painful crash and did little to lift consumption or investment.
“The stock boom has the potential to lead to irrational exuberance, an increase in leverage and the formation of a bubble. For Beijing, rolling [out] high-profile measures such as rate and reserve ratio cuts could fan the flames and inflate a stock market bubble, but doing nothing risks worsening the slowdown.”
This time the boost could be even smaller owing to structural headwinds.

For reasons, the bank cited Beijing’s tighter grip on IPO financing, which curtails wealth creation, and the housing market’s prolonged slump, which limits the wealth effect for households. Government-imposed pay cuts and lower brokerage commission fees also reduced income gains for financial professionals.
China’s property sector, once the main engine of growth, is now in its fifth year of contraction. New home sales from the top 100 developers have plunged more than 70% since 2021, while average home prices have fallen about 30% nationwide.
scmp.com/business/china