China’s Stock Market Continues on despite Difficulties

The A Shares that are traded in the Chinese stock exchange may be well away from their peak days, but they are still trading strong. The two major Chinese stock exchanges, the Shanghai stock exchange and the Shenzhen stock exchange, have definitely taken a hit from the adverse political climate. Trading activity has considerably been affected by the entanglement with the US and the so called trade wars, but investors still remain confident to say the least. Despite all the negativity that is highlighted by financial analysts, the equity market in China is still bullish.

One reason for the success of the Chinese market is the fact that Chinese stock markets have traditionally been volatile. This is especially true close to the release of the biggest indexes such as the one by MSCI which happened early this year in February. The local Chinese stock market ended up beating Brazil, the leader in the equity market at the time.

Things at the political end have also hit a stalemate situation. One thing that has gone in the favor of the Chinese stock markets and kept investor confidence afloat is that the tariffs on Chinese exports by the US have not gone to the extreme of 25% as was initially threatened. The tariffs were scheduled to go from the present 10% to 25% by start of March this year. Furthermore, the idea of imposing tariffs over the entire range of Chinese exports to the US has also been dropped.

Another reason is the strong and steady support from The People’s Bank of China. Behind the scenes, the Chinese bank has been buying equity in local stock exchanges. The government of China has also been consistently introducing economic stimulus in the form of credit facilities to small and medium firms in the retail sector. As a result, the local investor is not shaken and the retail sector is still seeing investments through the selling of its shares at the Chinese stock exchanges.

Investors in the retail sector are driven by momentum. These investors generally comprise migrant workers, university students, or elderly patrons of the stock exchanges. It is these categories of investors that make up a sizeable chunk of the investors in the Chinese stock exchanges and have been instrumental in the success of Chinese stock exchanges and the economy of the country. Of all the new trading accounts opened last year, a million of them were of retail investors.