The Chinese securities market can be easily disturbed by political climate and external factors. In the past, it has repeatedly missed the opportunity to rebound or grow. While there are many instances for serious reflection, due to various reasons, the securities market always ends up in confusion, and the unable to trace the path to success.
Based on the observation of the information, China's recent market climate is once again moving towards maturity, with the market base and economic foundation rebounded again. The Shanghai Composite Index of the Chinese stock market rebounded by nearly 1.8% on the trading day at the end of May, and created the largest one-day gain in more than a month, ending the continuous decline of the previous six consecutive trading days. The Shanghai Composite Index's SSEC closed at 3095.47 points, an increase of 54.03 points or 1.78%, after the largest one-day increase was 1.99% on April 24. The index rose 0.43% this month. The turnover of Shanghai A-shares was RMB 184.2 billion, which still belongs to the category of small transactions, reflecting the market's cautious attitude.
Anbound's information tracking and study show that there are more and more indications that the Chinese market is currently entering a new dynamic phase, and this is attention-worthy. The main factors are:
First, the revealed manufacturing and service industry PMI data shows that there is rebound, especially the manufacturing PMI that hit an eight-month high, showing that the fundamentals are better than expected and that market confidence has been boosted and can constitute an important supporting factor.
Second, June 1 is an important point in time when A-shares have been included in the MSCI index. Prior to this, offshore funds could also flow into the mainland market through land-links and QFII, but short-term inflows of funds will have limited impact on the market. The broader market will not respond to this expectation. However, the situation in the future will change with the opening up of China's finance industry. The northbound funds under the interconnection mechanism of China's stock market have apparently doubled in volume, which means that many international capitals have advanced to the mainland market in line with MSCI's A measures, and important step for A shares to get integrated into the global market. With more than 200 stocks being included in international indices, international capital will continue to flow into the Chinese capital market; this is an obvious possibility.
Third, external capital inflows continue. According to the statistics released by the China State Administration of Foreign Exchange (SAFE) at the end of the month, as of May 30, QFIIs (Qualified Foreign Institutional Investors) had a total approved investment quota of US$99.459 billion; at the end of last month it was US$99.459 billion. The SAFE also announced that the QDII quota for the same period was US$101.503 billion, compared with US$98.333 billion at the end of last month; the RQFII quota was RMB 615.852 billion, and at the end of last month the sum accounted for RMB 614.852 billion.
Fourth, trade disputes between China and the United States have shown signs of abating. At the very least, they have not increased to the point where China is unable to accept to cause recurrent trade wars. This creates conditions for the elimination of market concerns, and the upcoming Trump-Kim Meeting may eliminate the unstable factors in Northeast China and may also make the market more optimistic.
Fifth, the situation in Europe is unstable, and the risk points in Italy are gradually approaching the level of outbreak, allowing the original choice of international capital to change. Sensitive funds are beginning to seek new possible exports, even if it is less secure. While China now offers a choice, it also faces the impact of the huge changes in the world market, yet the progress of the situation shows that this negative factor may be within relatively safer range. China as a large market is still relatively safer than smaller market space like Italy or the ASEAN countries.
However, China's financial market and stock market risk still exist, although there is a possibility of entering a new dynamic phase, this refers to the fundamental market factors. The specific performance in the market may still be limited in scale and degree.
The main problem is that first of all, the instability in the trading environment still strongly influences the securities market. Statistics from SAFE at the end of the month show that the trade deficit for services in April was US$ 24.1 billion, a decrease of 8% from the previous month's US$ 26.2 billion, of which the proportion of deficits in travel deficits was 79.67%, and the balance of transport deficits accounted for 21.58%. In addition, the income from international trade in goods and services with international balance of payments was US$ 212.7 billion, and the expenditure was US$ 207.4 billion. In April, the trade surplus between goods and services was US$ 5.3 billion. Although the pattern of deficits in March was reversed, the trade deficit for services between January and April was US$ 99.4 billion and the trade surplus was US$ 81.6 billion over the same period; there is still a capital outflow compared to the overall trend. Secondly, the social cost factor is still very large, and the biggest problem in China is that the social operation benefits are unable to keep up with the cost increase. The proportion of enterprises with high raw material costs and labor costs continues to exceed 40%, which seriously affects the market valuation and leads to cost pressures, which is still one of the major problems in the production and operation of enterprises. Thirdly, the expectation value of China's securities market has a significant distance from the actual changes of China's external market space. Chinese investors are always looking forward to solving problems in a short period of time, yet this is impossible; this has become a limiting factor as well. Fourth, there is the "frozen" effect of financial clean-up and rectification. Although there is absolutely no shortage of money, the awareness and structure formed in the market for a long period of time are not easy to break, and can be easily impacted by the "frozen" and "money shortage" effect.
Final Analysis Conclusion:
In general, if the future of the financial industry has reorganizing the market order as its major goal, then the Chinese securities market will have the opportunity to solve problems in the process of development and can successfully obtain development opportunities in the new dynamic phase. Otherwise, the securities market will miss the development opportunities like before.
