In recent times, the Chinese A-share market has continued its strong momentum, with both the Shanghai and Shenzhen indexes repeatedly hitting new highs and an increase in market trading volume. In response to the stock market’s rise, institutional investors and individual investors have shown polarized reactions, with individual investors feeling increasingly anxious as the market climbs. Experts analyze the risk of a market collapse if it diverges from the economic fundamentals.
On Friday, August 21st, the mainland A-share market fluctuated and rose throughout the day, with the Shanghai Composite Index surpassing 3800 points and the ChiNext Index surging over 8% to a new high in three and a half years. A unidirectional upward trend was observed, with over 2800 individual stocks rising and over 2300 falling. The total trading volume of the Shanghai and Shenzhen stock markets for the whole day reached 2.55 trillion yuan, an increase of 122.7 billion compared to the previous trading day.
At the close, the Shanghai Composite Index rose by 1.45%, closing at 3825.76 points, the Shenzhen Component Index rose by 2.07%, closing at 12166.06 points, and the ChiNext Composite Index rose by 3.36%, closing at 2682.55 points.
Stock trend charts show that since April of this year, two-thirds of the days in the Shanghai Composite Index have shown an upward trend. On August 20th, the Shanghai Composite Index broke through 3700 points, maintaining an upward trend for several consecutive days, with the cumulative increase exceeding 40%, officially entering a technical bull market phase.
This round of A-share bull market is not caused by a single factor but a combination of multiple factors.
Since the beginning of this year, the central bank has released liquidity multiple times, leading to a continuous decrease in interest rates. According to a report by First Financial, there has been a significant trend of residents moving their savings. Statistics show that since 2021, residents have been shifting funds from real estate and low-yield assets to the stock market, creating a positive feedback loop.
Bloomberg data shows that the scale of Chinese residents’ deposits is currently approximately 1.7 times that of the market value of the Shanghai and Shenzhen stock markets, indicating enormous potential for savings to flow into the stock market.
Regarding the significant inflow of residents’ deposits into the stock market, Xie Tian, a professor at the Moore School of Business at the University of South Carolina, told The Epoch Times that “the Chinese Communist Party is doing everything it can to stimulate the economy.” The CCP may use public opinion guidance or deception to “try to entice people to take out their savings.”
He stated that “when deposit interest rates are lowered, people are less willing to deposit money, and may consider investing elsewhere more often.”
Additionally, many people in China believe that there has been a shift in the logic of the stock market. During the high-growth era of the Chinese economy in the past, business profits were mainly used for expanding production. However, in the current low-growth and low-volatility period, companies are more inclined towards dividends and buybacks. Wang Kai, an analyst at Guosen Securities, believes that experiences from long bull markets in countries like the United States, India, and Japan show that when the market shifts from “net financing” to “net feedback,” the bull market becomes more sustainable.
The growth of the Chinese stock market is also benefiting from external factors. Expectations of a Fed rate cut have injected vitality into global stock markets, benefiting China as a major exporting country. At the same time, technologies like AI, robotics, and renewable energy offer structural opportunities for the stock market.
In the face of the rising stock market, institutional investors and individual investors have shown divergent reactions. Institutions generally have a positive outlook on the market’s sustainability, with many brokerage firms predicting that the bull market will continue.
However, individual investor participation is noticeably low, only at about one-third of the peaks in 2015 and 2024 bull markets. Discussions about “when will the bull market end” have become a hot topic on social media platforms.
Many individual investors are influenced by past traumas, showing a mentality of “getting more anxious as it rises.” One investor shared that their family fell apart due to a margin call in 2015, and now that they have just broken even, they are considering liquidating their positions; another investor mentioned that their experience with delisting of ST stocks in the past has made them a “risk avoider,” preferring to stay on the sidelines rather than picking up stocks.
Interviews from Miaotou reveal that many individual investors have emotional stories: some have shifted from value investing to bottom-fishing mode, feeling anxious even with consecutive profits; others have diversified their portfolios, outperforming the index but with low trading frequency.
Overall, individual investors tend to “cut losses once breaking even,” reflecting worries about structural market trends and the challenge of rebuilding confidence. Wei Chunze, an analyst at Shenwan Hongyuan, pointed out that while the trend of residents moving their deposits is emerging, it has not accelerated comprehensively yet. The equity market is expected to be the next destination, but it will take time to digest historical shadows.
Miaotou emphasizes that a true bull market is not just about index highs but also about the return of confidence.
Despite the current hot market conditions, there are concerns if it deviates from the fundamentals. Historical experiences show that the Chinese stock market often experiences a phenomenon of “short bull markets and long bear markets,” where short-term surges are followed by long periods of sluggishness. After the bull markets in 2000 and 2007, the bear market caused extensive losses, and the rule of “seven losses, two flats, one gain” for individual investors remained true.
Guan Buyu, a mainland financial columnist, believes there are many reasons behind capital markets, such as geopolitical factors, monetary policies, trading rules, etc., but the crucial point is one thing: strong companies lead to a strong capital market. Guan Buyu says that while China has many large companies, not all large companies are necessarily “super companies.” The difference lies in their ability for continuous growth.
He warns that China lacks “super companies” with sustainable growth. This results in the Chinese stock market lacking the ability to “weather through cycles.” Relying solely on sentiment and policy trends, it is challenging to form a “long bull market.”
In contrast, the U.S. stock market dominates globally in capital markets. He believes this is due to American companies growing bigger and stronger. As of August this year, out of the top 100 companies globally in terms of market value, the United States alone claims 40 spots. The top three companies, NVIDIA, Apple, and Microsoft, are all American enterprises.
He states that when companies are strong, the stock market is strong, which is the fundamental principle of capital markets.
According to a Bloomberg report, economic activities in China slowed down across the board in July, indicating that the stock market’s rise lacks fundamental support.
China’s economy has currently entered a period of monetary tightening, and in such circumstances, the Chinese stock market is rising. Fan Jiazhong, a professor at the Department of Economics at National Taiwan University, believes that this divergence will increasingly distance the stock market from fundamentals, increasing the risk of a major collapse.
In times of economic downturn in China, the CCP “hopes that at least the stock market can have a glory to decorate its facade, which fits its political mission,” Fan Jiazhong said. The booming stock market reflects deep-seated manipulation by CCP officials. This is because “China’s A-shares are very different from Western markets; it is a very closed market.”
Xie Tian stated that during an economic recession, unless one is a major player or has insider information about the CCP’s policy direction, “investing in the stock market is absolutely unnecessary”; for ordinary people, “you also don’t know what the CCP will do, how they will deceive you,” so it’s best to be conservative and prioritize capital preservation.