Chinese shares are having their day in the sun, with the benchmark Shanghai stock index trading at an eight-month high on Thursday. The rally, however, may be close to running its course, some analysts say.
Amid signs of a rebound in China's economy, the Shanghai Composite has jumped about 22 percent from a 4-year low hit in early December. That's better than an 18 percent gain in the same period for Japan's booming Nikkei stock index, which has had reasons of its own to zoom higher. Chinese shares have also outperformed the MSCI's pan-Asia index, which has gained almost 6 percent since early December.
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Still, after gaining ground fast and in a short space of time, Chinese shares now look more likely to trade sideways, said Phillip Chan, a director at Shenyin Wanguo Securities in Hong Kong.
"We're reasonably upbeat about Chinese stocks, although as a house we're not looking for huge upside on the Shanghai Comp," he said. "It's had a strong run up last month and this month, so it's almost hit the target we set around 2,400."
The Chinese stock index rose to 2,385 on Thursday, its highest level since early June last year.
Chan says China's economic performance this year is unlikely to be as strong as some in the market expect - a reason why further strong gains in Chinese shares may be limited.
The Chinese economy, the world's second largest, grew 7.9 percent in the fourth quarter of last year from a year earlier, recovering after seven consecutive quarters of slowdown. The signs of a recovery have helped boost upbeat sentiment in the global financial markets.
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"We're not looking for huge growth in the economy and we are on the conservative side," said Chan, adding: "The recovery isn't that strong."