China A-shares surge Analysis- Policies drive confidence bull market
With the Chinese A-share market experiencing a remarkable surge just ahead of the National Day celebrations, many veteran investors were left astonished. On September 30, the index jumped nearly 300 points in a single day, with only eight out of more than 5,000 stocks seeing a drop. This so-called “fast bull” market saw the index rapidly ascend from 2,700 to 3,300 points in just a matter of days, igniting extensive discussions among investors.
To provide some insight into this unexpected market phenomenon, we spoke with Manager Liu from Guotai Junan Securities. Liu offered a detailed analysis, highlighting that while the soaring stock prices are certainly striking, several underlying factors deserve closer scrutiny. He pointed out that, amid this increase, regulatory authorities have not issued any warnings or implemented cooling measures. Interestingly, state-run CCTV aired a segment titled “A-shares Soar, Trading Volume Exceeds 2.6 Trillion, Setting New Records,” which lasted nearly 40 seconds. This is particularly notable considering that the last time A-shares received such attention was on July 6, 2020, suggesting a concerted effort to bolster market sentiment. Remarkably, despite reports of a 17.8% year-over-year decline in profits among large industrial firms, market confidence appeared to hold strong, fueling further gains.
In contrast, stock markets in nearby countries like Japan and South Korea faced declines, prompting some to speculate that the intense interest from foreign capital might be a significant factor driving the impressive rally in China’s A-shares.
Yet, despite this short-term strength, seasoned investors who lived through the 2015 market crash remain cautious. They question the justification for the current rise and express concerns that such rapid increases could lead to disorderly conditions, particularly given the prevailing weak economic environment and uncertainty about the durability of policy support for the market.
Liu noted that the Politburo meeting on September 26 laid important policy groundwork for this surge. The meeting highlighted the need to “boost the capital market and actively guide medium- to long-term funds into the market,” alongside a push to “support mergers and reorganizations of listed companies,” underscoring the authorities’ commitment to the capital market. Liu cautioned, however, that this rally seems to be primarily fueled by a policy-driven “confidence in the market,” rather than solid economic fundamentals. Looking ahead, authorities might utilize stock market gains to create inflation expectations, aiming to stimulate consumption and investment amid economic contraction.
This viewpoint suggests that the tempo of short-term increases may require more prudent navigation. As some investors have observed, the future trajectory of the stock market may depend on the ability to sustain this “confidence.” For those still hesitant, while the current market rally continues, apprehensions are starting to mount.
