A Primer on Stock Market Existing Funds
Many new stock market investors don’t fully understand the term "existing funds" (存量资金) often mentioned in discussions. Today, we’ll break down this concept.
What Are Existing Funds?
Existing funds refer to the capital currently present in the securities market. Simply put, it’s the unused money in trading accounts. New stock issuances involve numerous accounts, directly impacting the equity capital within these accounts.
Trading volume reveals how these funds decisively influence market trends. Existing funds in stocks equate to external capital waiting on the sidelines, typically replenished by such off-market liquidity.
Key Characteristics
Equity capital is the foundation for market rallies. There’s no real-time tracker for these funds because investor capital resides in linked bank accounts—dynamic pools where institutional money, whether for stocks or other purposes, flows interchangeably.
Market commentaries often assess existing funds based on daily or periodic inflows and activity levels, but such data is inherently lagging. For rough estimates, analysts rely on short-term central bank credit growth metrics. Currently, with China’s A-share market’s vast scale, stabilizing upward momentum requires at least ¥500 billion in existing funds; anything less proves ineffective.
Composition of Existing Funds
The primary components today include:
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Credit growth
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Institutional capital (e.g., insurance funds)
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Hot money from forex markets
Retail investors’ capital only becomes significant during speculative frenzies.
Incremental Funds: The Companion Concept
Beyond existing funds, "incremental funds" (增量资金) denote fresh capital entering the market. This growth is vital for sustaining healthy market operations.
How Incremental Funds Enter
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New Investors: E.g., Investor A opens an account and transfers money to buy stocks—this constitutes new capital. Recent years have seen more individuals entering markets, driving rallies through such inflows.
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Additional Investments: E.g., Investor B, seeing profitable trends, injects more money—also counted as incremental funds.
Broader Sources
Incremental funds aren’t limited to retail investors. When mutual funds attract more subscriptions, managers deploy this capital into stocks, effectively expanding market liquidity.
Implications
Growing incremental funds fuel bull runs. However, retail investors should exercise caution—maintaining reasonable positions is advisable given the high risks, especially in volatile markets.
