On August 22, the Shanghai Composite Index continued its strong upward trend and broke through the 3800-point mark, hitting a new high since August 20, 2015, while the STAR 50 Index surged nearly 9%. Nearly 2,800 stocks rose across the market, with 308 of them gaining over 5%. The trading volume in the Shanghai, Shenzhen, and Beijing markets exceeded 2.5 trillion yuan, marking the eighth consecutive trading day with a turnover above 2 trillion yuan and setting a new record for the longest streak of 2 trillion yuan trading volumes.
At the close, the Shanghai Composite Index was up 1.45%, the Shenzhen Component Index rose 2.07%, and the ChiNext Index increased by 3.36%.
"Bullish sentiment in the A-share market has been high since mid-to-late August, with investors remaining relatively 'excited,' and liquidity driving the valuation center of the stock indices higher. From the perspective of A-share liquidity, it has been improving since May this year, with incremental funds mainly coming from retail investors and margin trading. The strong risk appetite of margin trading may be the key factor driving the market's accelerated rise," said Xu Qingchen, a stock index analyst at Haitong Futures.
Cheng Xiaoyong, deputy general manager of the research center at Guangzhou Financial Holdings Futures, believes that the repeated new highs in the A-share market are mainly due to the following four reasons. First, policies continue to exert force. In response to weak financing demand and the funding gap for the "replace old with new" initiative, the government introduced two policies: personal consumption loan discount policies and service industry business entity loan discount policies. These policies, in coordination with financial policies, leverage the guiding role of public funds to drive more financial 'living water' into the real consumption sector, thereby stimulating consumption potential. Second, macroeconomic data for August shows that China's economic recovery is accelerating. Third, the wealth effect in the stock market has created positive feedback, with household deposits 'moving' into the stock market, bringing incremental funds. In July, household deposits decreased by 1.11 trillion yuan, while deposits of non-bank financial institutions increased by 2.14 trillion yuan. Fourth, expectations of a Fed rate cut have driven growth in northbound funds.
However, there is a clear divergence in the performance of individual stocks across the market, showing a pattern of "more declines than gains."
"Incremental funds often determine market style. In late August, the main source of incremental funds in the market was margin trading, which tends to have a higher risk appetite and prefers investing in small-cap growth stocks with relatively high price elasticity. Against the backdrop of accelerating market gains, 'offensive' sectors with strong Beta attributes, such as semiconductors and securities, have become the focus of recent fund attention," said Xu Qingchen.
According to Cheng Xiaoyong, on August 22, sectors such as semiconductors, software services, hardware equipment, and non-bank financials led the gains, with the STAR 50 Index rising over 5%. The main reason is that, in addition to expanding domestic demand, the focus of economic policies in the second half of the year relies on technological innovation to develop new productive forces, and technological innovation remains an important driver for China's economic transformation and upgrading. Furthermore, the technology innovation sector has received policy support: on August 21, the first batch of 10 Sci-Tech Innovation Bond ETFs received approval letters from China Securities Depository and Clearing Corporation Limited, allowing them to be used as general pledge-style repurchase collateral. After being included in the repo pledge pool, investors can conduct general pledge-style repurchase transactions.
Can the current A-share market be defined as a "bull market"? In this regard, Cheng Xiaoyong believes that it can currently be defined as a "bull market." Although the annual gain of the Shanghai Composite Index has not yet exceeded 20%, the Wind All A Index has already risen by 20.69%, and the gains of micro-cap stocks, the Beijing Exchange 50 Index, and the STAR 200 Index have all exceeded 50%.
Looking ahead, Cheng Xiaoyong believes that the index may undergo periodic adjustments but will not change the medium-term upward trend. On the one hand, the concentration of rising stocks in the current A-share market is not high, unlike the 2015 "water bull" market, which was concentrated in a limited number of industries and sectors. On the other hand, the stock market rally is supported by economic fundamentals, especially the rise of the technology sector, which reflects the development momentum and prospects of China's technology innovation enterprises.
