China's stock surge has echoes of the 2015 bubble. What is different this time?

BEIJING – The rocket higher in Chinese stocks so far looks different from the market bubble of 2015, analysts said.

Major mainland China stock indexes rose more than 8% on Monday, extending a winning streak on hopes of stimulus. Trading volume on the Shanghai and Shenzhen stock exchanges hit 2.59 trillion yuan ($368.78 billion), surpassing a high of 2.37 trillion yuan on May 28, 2015, according to Wind Information.

In the six months from 2014 to 2015, the value of the Chinese stock market doubled, while leverage increased, Aaron Costello, regional head of Asia at Cambridge Associates, pointed out on Monday.

This time, the market has not risen as much, although leverage is low, he said. “We're not in the danger zone yet.”

According to Wind Information, stock market leverage by percentage and value was higher in 2015 compared to Monday's data.

The Shanghai Composite surpassed 5,100 points in June 2015, a level it has never regained since the market plunged later in the summer. MSCI delayed adding mainland Chinese stocks to its globally tracked emerging markets index that year. Beijing's back-and-forth over a crackdown on trade in borrowed funds and a surprise devaluation hurt sentiment. Chinese Yuan Against the US dollar.

This year, the yuan has been trading stronger against the greenback, while foreign institutional allocations to Chinese stocks have fallen to multi-year lows.

The Shanghai Composite closed at 3,336.5 on Monday, before mainland exchanges closed for a week-long holiday commemorating the 75th anniversary of the People's Republic of China. Trading is set to resume on October 8.

In the run-up to the 2015 market rally, Chinese state media encouraged stock market investment, while relaxed rules allowed people to buy stocks with borrowed funds. Beijing has long sought to build up its domestic stock market, which is much smaller than that of the United States, which is nearly 30 years old.

The recent market gains followed last week's announcement of economic stimulus and programs to encourage institutions to put more money into stocks. The news helped stocks rebound from their lowest levels of the year The CSI 300 gained nearly 16% in its best week since 2008.

Chinese President Xi Jinping led a high-level meeting on Thursday that called for tightening fiscal and monetary policy as well as stemming the collapse of the real estate market. The People's Bank of China last week also cut interest rates and the amount that existing mortgage holders have to pay.

“Policy is very strong and [more] Compared to 2015 this time is integrated. That said, the economy faces larger headwinds[s] “Now than ever,” said Zhu Ning, author of China's Guaranteed Bubble.

A week of massive stock gains doesn't necessarily mean the economy is on a similar recovery path.

The CSI 300 remains more than 30% below its February 2021 high, a level that has also surpassed the index's 2015 high.

“The Japanese experience provides an important perspective, as the Nikkei 225 index rose an average of 34 percent four times en route to a 66 percent decline from December 1989 to September 1998,” Stephen Roach, a senior fellow at Yale Law School's Paul Tsai China Center, said in a blog post Tuesday. noted which was also published in the opinion section of the Financial Times.

Economic data over the past few months has pointed to slower growth in retail sales and manufacturing. This has raised concerns that China's gross domestic product will not reach its full-year target of around 5% without additional stimulus.

“I think what's missing is the key to a lot of this, which hasn't come out, which would be a measure of real confidence building, how they're going to fix local government finances,” Costello once said, referring to local coffers. Dependent on land sales for revenue to spend on public services.

While Chinese authorities have cut interest rates and eased some home-buying restrictions, the finance ministry has yet to announce additional debt issuance to support growth.

Peter Alexander, founder and managing director of Z-Ben Advisors, expects the level of fiscal stimulus – when it will be announced in late October – to be less than what markets are expecting.

“As people like to say, 'it might have investors on their skis a little bit more,'” he said Monday on CNBC's “Street Science Asia.”

He added in a written response that his experiences in 2007 and 2015 indicated that the Chinese stock market rally could last another three to six months or end abruptly.

“It's pure animal instinct and the Chinese are set for a stock market rally,” Alexander said. He added that there was risk in the market from how unprepared the stock trading system was to buy.

Data on the number of new retail investors in China this year was not publicly available. Reports indicate that brokerages have been overwhelmed by new requests, echoing how individuals piled into the stock market nearly a decade ago. The Shanghai Stock Exchange said on Friday that transactions were unusually slow at the market open.

“China was cheap and the catalyst was missing. … The catalyst happened to unlock value,” Costello said.

“Fundamentally we need to see corporate income rise,” he said. “If it doesn't, it's a short-term pop.”

Beijing's efforts to stem the market rout earlier this year include major changes to the securities regulator. Stocks climbed, only to see the rally peter out in May.

James Wang, head of China strategy at UBS Investment Bank Research, said in a note on Monday that one factor that could send stocks past May levels is that earnings per share forecasts stabilized and downgraded earlier this year.

Lower U.S. interest rates, a stronger Chinese yuan, increased share buybacks and a more coordinated policymaker response supported gains, he said. Wang's latest price target on the MSCI China index of $70 is now just a few cents above where it closed on Monday.

— CNBC's Hui G. Lim contributed to this report.