Stock Market: Shanghai Surprise?

This morning the stock market in Shanghai jumped 3%. Thus the Chinese Stock market continued the rally which had started last November. As I wrote in my post from November 26 2012 (Shanghai Blues - An Invitation?  drivebycuriosity) Shanghai was due to a recovery. Since then the Chinese stock market gained around 18% (google).

I believe that there are at least 3 reasons for the rally:

1. The Chinese economy reached its bottom in Q3 2013 and has been re-accelerating since Q4.

2. Huge public investment programs into the infrastructure.

3. The Chinese government (which got a new leadership in November 2012) announced extensive reforms to make stock market and economy more efficient.

I believe that the rally will continue because the Chinese economy should strengthen in the coming months. This year the economic recovery, the engine of the rally, should gain momentum helped by infrastructure programs and reforms.

I further believe that Chinese stocks are significantly undervalued. The sentiment is still gloomy and many are still underinvested in China because they followed hedge fund manager Jim Chanos (nytimes.com) and other short sellers who have banging the "china crash drum" for years. The recent economic improvements in China show that these allegations are not more reliable than the Aztec calendar.