By Xie Yu
Chinese shares jumped, with the flagship Shanghai Composite Index hitting its highest since early 2018, as small investors bet that a recovering economy and easier financial conditions would fuel a boom in corporate profits.
Analysts and investors said it was hard to pinpoint a single clear driver for Monday's surge. But some pointed to a front-page editorial in a major state-owned financial newspaper. Official encouragement helped stoke China's last major rally, in 2014-15, before that boom went bust.
The Shanghai Composite gained 5.7% to 3332.9, its biggest one-day gain since 2015. Brokerages, banks, miners, aviation companies and developers led the rally. Citic Securities, a leading brokerage firm, rose 10%--the daily maximum in China. Industrial and Commercial Bank of China, the country's biggest commercial bank, soared 8.5%.
The CSI 300, which includes large companies listed in both Shanghai and Shenzhen, also gained about 5.7%, hitting its highest since 2015. It has now gained 14% this year.
Khiem Do, head of Greater China investments at Barings in Hong Kong, said the dynamic was similar to that seen in the U.S., where stuck-at-home individuals have flocked to the stock market in hopes of profit.
"We feel great passion from individual investors, a bit like what fueled the bull run in the year of 2015," he said.
Turnover across the Shanghai and Shenzhen markets topped 1.57 trillion yuan ($222 billion), more than double May's daily average of 625 billion yuan, the latest available monthly data from Chinese exchanges.
A front-page editorial in China Securities Journal said fostering a "healthy bull market" is important given China's increasingly complicated international relations, intense financial and technological competition, and the challenge of controlling internal financial risks.
Steven Leung, executive director of institutional sales at UOB Kay Hian in Hong Kong, said the editorial had bolstered investor confidence. He said some mainland investors were also buying shares anticipating that coming changes, such as an overhaul of the Shanghai Composite, would attract more global investment.
Some said momentum was part of the explanation. The Shanghai Composite finished strong last week, rising more than 2% on both Thursday and Friday.
"I feel the rally is getting stronger based on a snowball effect--people watching others making money are jumping in," said Alex Au, managing director at Alphalex Capital Management, a hedge fund based in Hong Kong. "Like elsewhere, a lot of retail investors who started buying stocks in the second quarter did not lose money in the past few months, so they are comfortable with taking risks to push the market higher."
Hong Hao, chief strategist at Bocom international, said in recent days stock investors had been cheered by cuts made by the People's Bank of China to its rediscount and relending rates. He said those cuts boosted confidence that the central bank would be comfortable with relatively loose monetary policy.
Official data last week showed China's economic recovery picked up steam in June, as exports and services benefited from government-support policies and the reopening of some overseas markets.
Joanne Chiu contributed to this article.
Write to Xie Yu at Yu.Xie@wsj.com