China stocks have surged by nearly 40 percent in just over a month, shrugging off signs of a slowing economy, but valuations look stretched and a violent correction may be on the way, analysts said.
“We are entering into a very volatile consolidation period,” Hao Hong, chief strategist at Bank of Communications International, told CNBC. “The markets have risen for more than 300 days without a 10 percent correction, the longest time period in Chinese stock market history,” he added.
Shanghai’s stock market has been indefatigable this year. Even after the more eight percent sell-off since Tuesday, the Shanghai Composite is up 27.1 percent so far this year, compared with the MSCI Asia ex-Japan’s 10.8 percent rise and Emerging Market index’s 7.2 percent gain since the beginning of the year.
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