The mainland Chinese stock market recorded its highest point in 10 years. Amid major economic indicators released in July falling short of market expectations, the stock market's buoyancy, despite a lack of substantial positive news, is analyzed to be due to the expansion of liquidity in accordance with the Chinese government's low-interest rate policy. This trend is expected to accelerate in the second half of the year; however, there are warnings that the boom may not last long as it is a temporary rise influenced by external factors rather than a strengthening of the stock market's fundamentals.
According to the state-owned Global Times on the 19th, the Shanghai Composite Index, which is the index of the mainland Chinese stock market, recorded 3,740.5 during trading the previous day, setting a new high since August 20, 2015. On that day, at 9:45 a.m. (local time), it soared to 3,744.22. This is an increase of about 23% since hitting a low of 3,040.69 on April 7 of this year. During the same period, the Shenzhen Composite Index rose about 30%, and the ChiNext index, known as China's Nasdaq, surged 47%.
Moreover, on the previous morning, the total market capitalization of all Chinese A-shares (shares for domestic investors) exceeded 100 trillion yuan (about 1.9332 quadrillion won) for the first time. Agricultural Bank of China (ABC) reached the top of A-shares with a market capitalization of 2.19 trillion yuan (about 432 trillion won), followed by Industrial and Commercial Bank of China (ICBC) with 2.02 trillion yuan (about 391 trillion won). In addition, Kweichow Moutai, PetroChina, Bank of China, and CATL also surpassed a market capitalization of 1 trillion yuan (about 193 trillion won).
Bloomberg reported that liquidity and government policies are factors contributing to the boom in the Chinese stock market. Bloomberg noted, "Households in mainland China have accumulated record savings, but as interest rates continue to decline, they are moving to the stock market in search of better returns," adding, "Last week, the balance of margin trading loans reached the highest level since 2015, and the average monthly trading volume on the Shanghai and Shenzhen stock markets has been increasing for three consecutive months."
Although there have been no good news such as the announcement of large-scale economic stimulus or a U.S.-China trade agreement, Bloomberg noted that the Chinese government's measures to curb excessive price competition and overproduction in certain sectors are raising investor expectations for easing deflation and improved corporate performance.
The boom in the Chinese stock market is expected to accelerate further in the second half of the year. Amid rising expectations for the economic recovery effects of the '15th 5-Year Plan (2026-2030)' set by the government, additional interest rate cuts in the second half are also anticipated to increase liquidity. According to reports, liquidity supply in June actually increased by 4.6% compared to the previous year, marking the largest increase in over two years. Fu Zifeng, Chief Investment Officer of Shanghai Chengzhou Investment Management, told Bloomberg, "In a low-interest-rate environment with a lack of investment opportunities and abundant liquidity, high-risk funds are gradually increasing their stock proportions," adding, "This trend has just begun, and there are no reversal signals for the time being."
However, there are also criticisms that a rebound in the stock market, without clear improvements in its fundamentals, may not sustain for the long term. In fact, according to China's National Bureau of Statistics, the economic indicators for July have all fallen short of market forecasts. The industrial production growth rate hit its lowest level since December of last year, while the retail sales growth rate reached its lowest level since November of last year. Fixed assets investment recorded the worst performance since early 2020.