Recently, the CCP launched a series of major market support measures, triggering a sharp rise in the Chinese stock market. However, how long can this upward trend in the stock market last? Can it save the stock market and the economy? How can investors protect themselves? These have become the focus of expert attention and analysis.
Last Tuesday, three financial departments of the CCP jointly implemented “liquidity injection.” After the CCP Political Bureau “held an early meeting” on Thursday and released a heavyweight “market support” signal, the Shanghai Composite Index and Hang Seng Index soared by about 15% and 13% respectively. The Shanghai and Shenzhen 300 Index rose by 25% last Friday, reaching a historic high.
Currently, mainland China is still in the National Day holiday period, and the trend of the Hong Kong stock market in these days has become a barometer for observing the effectiveness of the CCP’s market support policies.
On Thursday (October 3), after experiencing a “six consecutive rises,” the Hong Kong stock market suddenly showed signs of decline. Although the market stabilized and closed higher during the week, creating a two-year high, the drop on Thursday still shocked Chinese investors. Topics like “dramatic changes in the Hong Kong stock market” and “Hong Kong stock market plunge” trended on Weibo, sparking extensive discussions among netizens.
Some bloggers insist that A-shares will continue to rise. Blogger “Little Blue Brother” said: “There was no sharp drop in the Hong Kong stock market. Stop spreading rumors about the Hong Kong stock market plunging, causing panic as if it’s the end of the world, misleading many new investors who thought it was a sharp drop in the A-shares. Even if the Hong Kong stock market plunges, what does it have to do with the A-shares?”
However, some financial bloggers are worried about a potential stock disaster replaying, and the performance of the Hong Kong stock market is causing unease. Blogger “Ningbo Financial He Wei” said: “Originally thought that post-holiday Hong Kong-related funds would catch up after the jump, but this sudden drop has made us on vacation anxious.”
Fang Yuan, a current affairs commentator who was also a stock investor, told Radio Free Asia that there is a polarization of views on the stock market among netizens. “A group of people have seen that in the Chinese stock market, only the authorities and the wealthy can make money. Look at how much Ma Huateng’s net worth has surged in this wave, ordinary people are only suitable for watching from the sidelines or timely exiting.
“But there are also many people who do not understand the reality, actively respond to official market interventions, and even spare no effort to bet their fortunes, playing games with policies, trying to cut losses or profit from it. However, in the Chinese environment, it’s certain that the ultimate losers in these games are some small and medium-sized retail investors.”
As for when investors should enter and exit the market, columnist Gao Tianyou of Hong Kong’s “Sing Tao Daily” analyzed that several CCP ministries suddenly “played major cards” together, indicating that the highest leadership of the central government has instructed that short-term “market support” effects must be achieved, and these officials have received direct instructions, suggesting that more strategies may come one after another.
The Chinese stock market is categorized as a “policy-driven market.” How can investors protect themselves? Gao Tianyou said, first, pay attention to official dynamics and observe whether various “major moves” are continuing and whether officials still show confidence. Second, be attentive to subtle changes in market sentiment, when it resembles the frenzy of the “national stock speculation” in 2015, it may be time to reduce holdings and exit.
Many analysts believe that the sustainability of the stock market depends on the economic fundamentals. However, Gao Tianyou analyzed that a good Chinese stock market does not necessarily mean a good economy.
He gave examples, in 2001, after China’s entry into the WTO, the economy achieved high-speed growth, with GDP growth rates ranging from 8% to 11% annually, yet A-shares remained weak. The Shanghai Composite Index, which started at around 2100 points in early 2001, fell to less than 1200 points by the end of 2005.
However, in 2015, the annual GDP growth rate fell to 6.9%, reaching a 25-year low. A-shares, under the so-called “national bull market” policy support, the Shanghai Composite Index started at around 3000 points in early 2015, rose to over 5100 points by June but then fell back to its original levels by September.
The article also stated that in comparison, the Shanghai Composite Index had a maximum increase of 65% in 2015, while the current round of increase is only about 17% for now. Therefore, A-shares may still have over 40% room to grow.
The article argued that investors should not equate “long-term economy” with “short-term stock market.” The overall trend of the Chinese economy cannot be easily reversed solely by major market support measures, and it does not mean that the stock market will not experience a bull run in the coming weeks or months.
It advised investors not to mistake the “rapid rise in the stock market” as a “turnaround in the economy” and emphasized the need to stay vigilant and avoid being carried away by bullish sentiments.
Economist Wu Jinglian has long determined that the Chinese stock market is worse than a casino; you have rules in a casino, while in China, you can see others’ cards, you have insider information.
Nomura Securities of Japan recently warned investors to prepare for the largest retreat in the Chinese stock market in 16 years, as the current economic fundamentals in China are much weaker than before the pandemic.
Nomura Securities’ chief economist for China, Lu Ting, said in an email to clients on Thursday, in the most pessimistic scenario, “a collapse will follow the stock market frenzy, similar to what happened in 2015.” He added that the likelihood of this outcome might be much higher than more optimistic situations.