Shanghai Composite Index posts biggest gain

#OnETNOW | Is China’s stock market rally a sign of strength, or are underlying economic troubles holding it back? Will India attract more foreign investment instead? Matt Orton weighs in.@RJInvMgmt @nikunjdalmia https://t.co/MEZYibFf4u

— ET NOW (@ETNOWlive) September 30, 2024

China’s stock market has experienced a significant surge, with the Shanghai Composite Index rising to over 3,087 points last Friday. This marks the index’s biggest gain in 16 years, reversing the bearish sentiment that had seen it fall below 2,700 points on Sept. 18. Experts remain cautiously optimistic about the market’s future, even without the strong rally.

Chinese Stock Market enters technical bull market with a 20+% gain in 2 weeks! Before this move, the CSI 300 was trading at 5.5 year lows 👀 pic.twitter.com/J8YgKtce23

— Barchart (@Barchart) September 30, 2024

Chen Guo, chief strategist at China Securities, noted that the turnover rate of A shares is around 1.5 percent of the free float market cap, nearing historic lows. “This often signals the end of a market adjustment,” said Chen. “The A-share market is ready for bottoming out given companies’ profitability, average valuation, and trading characteristics.”

Chinese Stocks post best week since 2008 with a gain of 15.7%! Congrats to Beijing 🥳 pic.twitter.com/6rab5qgJIV

— Barchart (@Barchart) September 27, 2024

Positive news from external markets has also bolstered sentiment. The US Federal Reserve announced a 50-basis-point cut on Sept. 19, which is expected to improve A-share liquidity in the short term.

Hello Monday! What do you mean by '#China's fresh #stimulus is not huge'? While its economic impact remains to be seen, Chinese equities have exploded higher, with some indices trading 30%(!) up since the first announcements. pic.twitter.com/KP664PezuB

— jeroen blokland (@jsblokland) September 30, 2024

Shanghai Composite index’s historic surge

However, strategists stress that a sustainable rebound depends on company fundamentals and successive supportive economic policies. Governor of the People’s Bank of China, Pan Gongsheng, announced a 50-basis-point cut in the reserve requirement ratio and a swap program enabling financial institutions to obtain liquidity from the central bank. These measures are expected to inject significant capital into the financial market. The China Securities Regulatory Commission (CSRC) has reiterated the need to improve the quality of A-share companies. Wu Qing, chairman of the CSRC, emphasized that high-quality listed companies are the ultimate sources of investor confidence. Changes include tighter regulations on IPOs and increased oversight of listed companies. Efforts are underway to bring more medium- to long-term capital into the A-share market. High-quality development drivers, such as the digital economy, high-end manufacturing, and new energy, need financial support. Allowing more long-term asset management firms into the Chinese stock market would enhance liquidity and market vitality, according to industry experts.