Asian stock markets show signs of bubbles

Asian stock markets are showing signs of bubbles.

In China, Bloomberg reports that margin debt has surged.

The outstanding balance of margin debt on the Shanghai Stock Exchange surpassed the trillion-yuan mark for the first time on Wednesday, a nearly fourfold jump from just 12 months ago. The city’s benchmark index has surged 86 percent during that time, more than any of the world’s major stock gauges...

The outstanding balance of the margin debt on China’s smaller exchange in Shenzhen was 493.8 billion yuan on March 31. That puts the combined figure for China’s two main bourses at the equivalent of about $241 billion...

For BNP Paribas SA economist Richard Iley, the surge in Chinese margin purchases is among signs of a bubble fueled by individual investors...

“Leverage cannot rise forever,” Iley wrote in a report last month. “The more the stock of margin debt climbs, the greater the risk of a disorderly unwinding of leveraged positions once net redemptions begin to accelerate.”

Another Bloomberg report said that China’s stock market rally is being fueled by high-school dropouts.

New data from the China Household Finance Survey, a large-scale survey of household income and assets headed by Professor Li Gan of Southwestern University of Finance and Economics ... finds that the biggest new investors in China’s equity markets have below a high school education and relatively low levels of asset ownership.

Meanwhile, in Japan, Bloomberg reports that this year’s Japanese stock rally has a surprise leader: pharmaceutical companies.

Drugmakers soared 22 percent, the most among the 33 industry groups on the benchmark Topix index, compared with a 10 percent gain for the Topix itself. The Topix Pharmaceutical Index climbed to its highest on record on March 24, and earnings multiples are about twice the market average. The Topix has beaten pharmaceutical shares in 12 of the past 17 years it rose.

“Valuations are ridiculous, and foreign investors are scratching their heads,” said Richard Whittall, a fund manager at Alltus Capital (U.K.) in Singapore who’s watched Japanese stocks for 25 years.