After volatile spring, Chinese stock market indices soar in July

Amid the coronavirus pandemic, mainland China stock markets have performed better than most exchanges around the world in recent months. Share prices have been buoyed by accommodative monetary policy and hopes of massive government stimulus measures. Chinese share prices fell as elsewhere during the global market collapse in March, but have recovered since. On Thursday (July 9), the Shanghai Composite index was up 13 % from the start of the year, while the Shenzhen index was 31 % higher for same period. Notably, shares included in ChiNext, the Shenzhen stock exchange’s index of growth companies, were up over 50 % from the start of the year. The turbulence in Hong Kong and China’s new security law for Hong Kong that went into effect at the end of June have yet to significantly affect stock market performance. On Thursday, Hong Kong’s Hang Seng index was up 11 % from the end of June and 3 % from the end of 2019.

Over the past week, share prices on mainland China stock exchanges have climbed by over 10 %. While some of the rise in share prices reflects economic recovery, the uphill charge has been spurred by official media hyping for people to invest in shares of domestic firms. Analysts add that stricter regulation of other forms of investment and lower interest rates have driven investors into stocks. Some worry that relaxed access to financing is driving speculative investment in equities rather than investment in the real economy. As during the 2015 stock market bubble, leveraged buying of stocks has surged in recent days. Media reports show that small investors are again increasingly opening new trading accounts. Since April, international investment assets have flowed into mainland China’s stock markets via Hong Kong's stock connect arrangements. In March, capital flowed out of China.

Mainland China stock exchange indices have outperformed the MSCI Emerging Markets and S&P 500 indices

Sources: Macrobond and BOFIT.