The A-share market has been active recently, with the Shanghai Composite Index repeatedly hitting new decade highs. Since the beginning of this year, the absolute returns of the Shanghai Composite Index and the CSI 300 Index have reached 11% and 8%, respectively, with an accelerated upward trend since late June. More importantly, on August 15, the Shanghai Composite Index officially broke through the 3,700-point mark, the first time it has returned to this level since August 2015, exactly a decade later. Meanwhile, the CSI 300 Index has also surpassed 4,200 points, after briefly touching this level only at the end of September 2024.
The movement of onshore bond market yields indicates that domestic investors are becoming more optimistic about the long-term macroeconomic outlook. Notably, since June, yields on long-duration bonds in China have continued to rise. Currently, the yields on China’s 10-year and 30-year government bonds are 1.78% and 2.11%, respectively, up by 15 basis points and 27 basis points since late June.
The author believes that improved liquidity, the flow of funds from the bond market and savings into the stock market, coupled with expectations of policy easing, are forming three forces driving the rise of A-shares. The increase in onshore bond yields suggests that investors’ expectations for the long-term macroeconomic outlook have further improved, and A-share performance may continue to outperform offshore markets.
First, domestic liquidity has improved. Morgan Stanley’s Free Liquidity Indicator turned positive in June (used to measure the residual liquidity in the financial system available for investment after the real economy absorbs liquidity). Since the beginning of 2024, this indicator turned positive for the first time in June 2025 and remained positive in July, mainly due to the gradual transmission of funds released by large-scale government bond issuance to the corporate sector.
Second, "anti-involution" measures have boosted market confidence. China’s "anti-involution" measures are gaining momentum, and as expectations for faster stabilization of domestic prices and improved supply-demand dynamics heat up, market sentiment has been further lifted.
Third, the market expects macroeconomic policies to be further strengthened. The Ninth Plenary Meeting of the State Council held on August 18 explicitly called for "consolidating and expanding the momentum of economic recovery." Since the second half of the year, macroeconomic data has indicated that policies to expand domestic demand need further strengthening. The meeting proposed measures such as boosting consumption, advancing major infrastructure projects, and urban village renovations to ensure the achievement of annual economic goals. Crucially, the meeting mentioned "taking strong measures to consolidate the stabilization of the real estate market," suggesting that a new round of localized, gradual measures to stabilize the property market may be imminent.
Fourth, some funds may shift from bonds and fixed deposits to stocks. As mentioned, rising bond yields may drive funds from the bond market to the stock market. At the same time, fixed deposits with interest rates above 3% from three or more years ago are maturing, and renewing them at current rates is unattractive. These funds are expected to passively shift toward equity allocations.
In the author’s view, indicators to judge the sustainability of this "bull market" include the following four aspects.
First, the yield of onshore RMB bonds. As of August 28, the 10-year government bond yield has risen from 1.65% at the end of June to 1.78%. As mentioned, this suggests that investors are more optimistic about the macroeconomic outlook, prompting a shift from bonds to stocks. Whether the 10-year government bond yield can stabilize will be a key signal to watch.
Second, the implementation and impact of macroeconomic policies in the third and fourth quarters. "Anti-involution" actions and implementations across various sectors and industries are expected to continue, while further policy signals aimed at stabilizing growth and improving livelihoods will likely continue to boost the capital market.
Third, second-half performance. The A-share market achieved expected quarterly performance in Q1 2025. Whether this performance can be sustained will be a key signal for whether the profit growth trajectory can reach an inflection point.
Fourth, the margin trading balance. The margin trading balance has now exceeded RMB 2 trillion (USD 290 billion). As of September 1, the short-selling balance for the entire market was RMB 16.163 billion, with a short-selling volume of 3.027 billion shares. The total margin trading balance for the entire market reached RMB 22.96991 trillion, a record high in A-share history. Although the absolute value appears high, its subsequent changes need to be closely tracked. As of August 26, the margin trading balance accounted for only about 2.3% of the circulating market value, still below the peak of about 4.27% in 2015. However, the proportion of margin buying in daily A-share trading volume is rising rapidly but has not yet exceeded the peaks of 2020 and 2015. Therefore, there is still room for growth in leveraged funds, but if these two indicators continue to accelerate, further attention to regulatory measures will be needed.
