By Stanley White and Samuel Shen
TOKYO/SHANGHAI (Reuters) - A state-endorsed rally in Chinese stocks has driven share prices to five-year highs, spurred a retail investor splurge and raised concern among some market participants about a repeat of 2015's bubble-and-burst episode.
Yet, despite signs of froth in some stocks, analysts reckon it will be a while before valuations or leverage encumber the market.
Blue-chip Chinese stocks <.CSI300> have been rising for six days and rose in heavy volume to their highest since June 2015 on Tuesday. The yuan is threatening to strengthen past the closely watched 7-per-dollar mark.
Surging volumes and a deluge of foreign money began the run-up in share prices last week. It gained pace on Monday after the China Securities Journal, which is seen as a government mouthpiece, called for a healthy bull market in stocks to strengthen Beijing's diplomatic hand.
Long Aihua, who works at a branch for Guoyuan Securities, has seen a frenetic rush among retail investors to open new stock-trading accounts or activate dormant ones.
"Heady new investors are rushing into the market, but many seasoned clients are wary of the strong rally, which they think is more technical, than fundamental-driven," he said.
That frenzy is reminiscent of 2015, when China's Communist Party tried to compensate for weak economic growth by spurring the stock market to a seven-year high. Then the lack of macro backing and excessive retail leverage triggered a 45% collapse.
Those arguing this time is different point to China's speedy recovery from the coronavirus pandemic, evident in rebounds in manufacturing activity, industrial profits and retail sales.
While some shares, particularly those on Shanghai's tech-heavy STAR Market, seem bubbly, China's blue-chip shares are trading around 14 times earnings -- which is cheap both by historic and global comparisons.
The main Shanghai stock index <.SSEC> is around 3,350, half the levels seen during its 2015 peak.
Much of the 2015 rally was driven by unregulated margin lending that inflated the shares of low-quality technology start-ups, while Beijing's tight grip on financial markets kept foreigners out.
This time, investors are focused on sectors at the fore of Beijing's push for self-sufficiency, such as semiconductor and artificial intelligence firms, and foreign money is adding resilience, brokers say.
The retail blitz, while so far contained, is where risks might lie.
The amount investors borrowed from brokerages for stock purchases has jumped by a fifth to over 1.2 trillion yuan in just two months, and some cash is flowing into structured Ponzi-like products that previously caused speculative bubbles.
Mutual funds have had to suspend investments in new funds after a deluge of subscriptions. Advertisements for margin financing outside the brokerage system, which are banned, have also exploded on social media.
"It's a bit like in 2015!" said one user on Weibo, China's version of Twitter. "The difference now is that we dare not readily put money into business and property whose prices are not rising, so we can only put extra money into the stock market."
Tai Hui, Asia chief market strategist at J.P. Morgan Asset Management, said China's regulators wouldn't be overly concerned yet.
"If, for example, we start to see people take out leverage to bet on stock markets, the age-old indicator of broker accounts, if that starts to spike again, then yeah, I think regulator might want to come out and cool things down a bit," Hui told a media event in Hong Kong on Tuesday.
"But I think we are still early in that rally."
(Additional reporting by Luoyan Liu in Shanghai and Noah Sin in Hong Kong; writing by Stanley White; editing by Vidya Ranganathan, Larry King)