On the eve of the 75th anniversary of the Chinese Communist Party’s governance, the People’s Bank of China (PBOC) announced a series of large-scale monetary stimulus and real estate market support measures starting from September 24th. The move led to a rapid rebound in the three major stock indices in China, reaching new highs in months. However, as individual investors entered the market in large numbers, over a hundred listed companies took the opportunity to reduce their holdings.
Experts pointed out that the Chinese Communist Party is creating an illusion of economic prosperity by pumping money into the market. The stock market had been declining for a long time, prompting some to try to recover losses while others took the opportunity to cash out. The entire market manipulation plan by the Chinese Communist Party may lead to even greater crisis.
From September 24th to 27th, the Chinese authorities announced measures to boost the economy including interest rate cuts, reductions in down payment ratios for home purchases, and providing around 1 trillion yuan of long-term liquidity to the financial market, investing 800 billion yuan to support the stock market.
The injection of funds by the Chinese government led to a rare surge in the previously stagnant Chinese stock market. The Shanghai Composite Index rose from 2748.85 points on September 23rd to 3087.53 points on September 27th, hitting the highest point since May.
On September 29th, PBOC announced a reduction in mortgage rates for existing homes, Shanghai and Shenzhen relaxed some home purchase restrictions, and Guangzhou even completely lifted purchase restrictions. As of today (September 30th) morning, the Shanghai Composite Index rose to 3263 points, up over 5%; the Shenzhen Component Index rose to 10,302 points, up over 8%; the ChiNext Index rose to 2100 points, up over 11%.
By the closing on September 30th, the Shanghai Composite Index surged by 8.06% to 3336.5 points, the Shenzhen Component Index surged by 10.67% to 10,529.76 points, the ChiNext Index surged by 15.36% to 2175.09 points, and the STAR 50 Index surged by 17.88%, while the STAR 50 Index surged by 22.84%; the total turnover of the two markets reached 2.5931 trillion yuan, hitting a historical high.
Simultaneously, authorities heavily promoted the idea of a “bull market is coming”, leading many individual investors to enter the market encouraged by the authorities, resulting in a significant increase in trading volume.
According to Guoyuan Securities, by September 27th, the company had opened over 3000 new accounts, with daily new account openings more than doubled; the average daily trading volume exceeded 300 billion yuan, a growth of over 40%; another brokerage from North China reported that the number of new accounts opened on the 27th was thrice that of the 26th; yet another brokerage provided growth rates of 2 to 2.5 times, or even 2 to 4 times in new account openings.
According to a report by “Financial News” on September 29th, wind data showed that in just 4 days, the A-share market value surged from 74.98 trillion yuan to 84.86 trillion yuan, with a net increase of approximately 1 trillion yuan, with an average of 47,000 yuan per capita for stock investors.
As “eleven” approaches, the Chinese stock market has experienced an unusually sharp surge, leading investors to describe it as “moving from the ICU to a KTV.” Chinese securities firms described the surge as a tide of account openings in the past few days.
Xu Zhen, a senior figure in the Chinese capital market, told Dajiyuan that the current Chinese stock market is still policy-driven. The current market trends are driven by both policy and funds, and as in the past, market cannot be sustained solely by policies, it requires significant capital injection.
He analyzed the funds from the central bank: the first is to create inter-exchange convenience for securities, funds, insurance companies, with an estimated amount of 1.5 trillion; the second is to establish a special loan for stock repurchases with 900 billion in the third phase, totaling 2.4 trillion; the establishment of stabilization funds is still under research, with no clear timing or budget disclosed.
Xu believes that the 2.4 trillion yuan can boost the stock market in the short term but is far from enough for the long term. If all the financing tools of the central bank are used and a total market value increase of 20%, about 14 trillion, can be achieved, it will have a long-term impact, otherwise, it will only be a short-term trend. Considering the current economic and employment fundamentals, the current state of the stock market does not have a solid foundation for improvement, as the performance of listed companies is expected to continue declining, inadequate to support sustained high stock prices.
“Therefore, at present, individuals’ savings entering the stock market have a high possibility of short-term profits but in the long run, it’s a fate of being harvested.”
Chinese issue expert Wang He told Dajiyuan that the surge in the stock market is due to market manipulation by the authorities. The PBOC introduced two structural monetary instruments and brought 800 billion into the market, leading mutual funds, bond companies, securities companies, insurance companies to speculate in stocks, allowing listed companies to repurchase stocks, etc., to support the market. The subsequent announcement of second and third phases is equivalent to the central bank assuring ample funds to everyone, which led to a speculative behavior.
“Because the Chinese stock market had been plummeting for a long time, many people suffered losses and thought that this was an opportunity to make up for them. Therefore, a frenzy erupted. This is very abnormal. Those who put themselves at risk are lured by the desire for money, entered the Chinese stock market on a large scale, thinking it’s a real opportunity to make money.”
During the abnormally sharp surge in the Chinese stock market, from September 22nd to 28th, 146 A-share listed companies collectively reduced their holdings, with a total of 280 disclosure announcements about reductions, and some shareholders of listed companies completed the reduction during the stock market boom.
Sina Finance stated on the 29th that due to the surge in markets this week, many shareholders couldn’t wait to reduce their holdings. Investigation of announcements of reductions issued by listed companies in the past week revealed a total of 146 companies.
The article bluntly states, “Just a week after the surge, these companies couldn’t wait? The central bank provided 300 billion for you to increase repurchases, but no substantial increase was observed, instead, there’s a bunch of reductions, shareholders are coming to invest in companies, you are completely trying to sell the company to us!”
As reported by “Economic Observer” on September 28th, the companies’ reduction plans mainly involved major shareholders, controlling shareholders, actual controllers, and persons acting in concert, with the reasons for reduction mainly being their own fund needs.
Xu Zhen stated if it’s a short-term market trend, then for listed companies’ actual controllers and institutional investors, it’s a rare opportunity to exit. In February this year, when the market climbed from over 2700 points to 3000 points, the China Securities Regulatory Commission issued the strictest reduction rules in history, but by September 20th, the market plunged back to 2700, leading to reductions by shareholders and institutional investors in this round of market intervention. In addition, during the market intervention in February, the national team’s capital was involved, and if there were losses, relevant persons would be held accountable. Hence, in this round of market intervention, it’s positive for the national team, listed companies, and institutional investors.
Wang He noted that China’s stock market has experienced ten stock market crashes in over thirty years, a scenario unseen in other global markets. Many Chinese listed companies aimed to raise funds and harvest investors. Since 2022, the stock market had been in a slump, and now finally with this surge, it’s an opportunity for investors to rush to untangle. Those who have dealt with the stock market situation have a clear view, and they should seize this opportunity quickly.
“Now that there are so many new account openings, one wave of retail investors after another. But for those who have been trapped for a long time, this is the perfect opportunity. After this surge, there likely will be another market crash. So, the current high market situation creates fear among those who understand the Chinese stock market.”
Independent commentator Cai Shunkun stated in a self-media program that massive printing of money will inevitably bring about a rare stock market surge, unrelated to a bull market, completely the result of policy and fund accumulation, especially as the Chinese Communist Party approaches its 75th anniversary, aiming to portray an image of “national prosperity” and “vigorous progress.”
“The structure and fundamentals of listed companies will not change. For deeply trapped investors, it’s an opportunity to untangle, and as for those boldly diving in this time, 3500 points will be their way out. As for the exchange rate, maintaining around 7 would be good, don’t dream of returning to the 6.2 level, grab dollars if you have money and find ways to convert them or allocate them to overseas assets. Avoid investing in houses anymore, if the price can stabilize, sell the property bought ten years ago, don’t hesitate or wait, the opportunity to cash out is fleeting, do not miss it.”
Wang He stated that the current market intervention plan by the Chinese Communist Party is powerful externally but weak internally, facing a significant financial crisis. Under political pressure, the central bank implemented policies without internal sustainability or economic logic.
“Those financial sharks on Wall Street feel that it’s best not to touch the Chinese stock market, even if the price drops further low, as the uncontrollable risks are too significant, and the future outlook is very dim and bleak. Therefore, numerous cash-outs and reductions in massive numbers domestically are normal.” he said.