Chinese Investors Rush into Stocks to Avoid Missing Out on Epic Rally, According to Reuters

By Samuel Shen and Summer Zhen

SHANGHAI/HONG KONG – China’s stock market is experiencing a resurgence, as investors flock to equities, spurred by a wave of stimulus measures from Beijing and driven by a fear of missing out on what many believe could be an unprecedented rally.

Brokerages are bustling with retail clients, leading to a significant uptick in trading activity as investors shift their funds from bonds and deposits into stocks. This has resulted in heightened stock turnover and rising yields.

"Deposit rates are too low, and real estate investment is no longer safe," said Darren Wang, a 30-year-old office worker who has begun investing in stocks using borrowed money. "There’s no other way to get rich other than increasing bets on stocks. The current market excitement could be historically significant."

After three years of subdued performance, where economic activity struggled to recover from the pandemic and a debt crisis in the property sector affected markets, investors are now optimistic. The blue-chip CSI300 Index jumped 16% last week, marking its best performance since 1998, following government announcements of various stimulus initiatives, including interest rate cuts and a large financial package aimed at supporting stock prices.

While many of these policies have yet to be put into action, and there is no assurance they will effectively improve the economy or address ongoing challenges like the property crisis and weak consumer spending, investors appear willing to chase potential gains.

"Life has been tough for so long; finally, it’s time to make some money," said Wen Hao, a tech startup manager in Hangzhou who invested in energy stocks recently. He drew parallels with the 2015 bull run, noting the significant sums of state-backed funds expected to flow into the market.

Recently, the central bank announced a swap program valued at 500 billion yuan to facilitate stock purchases by brokers, funds, and insurers. Additionally, a 300 billion yuan re-lending facility is planned to support share buybacks by listed companies.

On Monday, China’s CSI300 Index surged more than 8%, building on the previous week’s gains. Stocks in Shanghai increased by over 7%, while Shenzhen shares soared more than 10%, with total trading volume reaching 2.6 trillion yuan—higher than during past bull markets.

"The last bull run was fueled by illicit margin financing; this time, it’s the central bank providing leverage," noted a hedge fund manager who requested anonymity. "Investors are flocking to stocks due to state backing, and this rally is more about liquidity and sentiment than actual economic fundamentals."

An editorial in the China Securities Journal underscored official support for the rally, stating that reviving the stock market and boosting investor confidence would promote economic recovery by breaking a cycle of reduced investment and pessimistic sentiment.

Brokerages, which were quiet just a week ago, are now inundated with investors keen to open new accounts or borrow funds for trading. The demand has been so overwhelming that clearing services remained operational over the weekend to process account approvals.

Zion Zhong from a brokerage in Suzhou commented on the sudden influx of activity in margin financing. Another manager from Citic brokerage in Shanghai noted a dramatic increase in business, with more people opening stock accounts and inquiring about margin financing.

The rapid increase in buy orders caused transaction delays at Shanghai’s stock exchange, prompting tests over the weekend to ensure system reliability.

In a notable shift of capital, China’s 30-year treasury bond futures fell to a two-month low on Monday, reflecting a significant withdrawal of investments from safer assets.

Zhao Jian from Atlantis Finance Research Institute described this as a massive migration of capital, predicting that trillions would flow from bond funds and other fixed-income products into equities. He pointed out that years of a bear market have led many short-term investors to seek recovery of their capital, suggesting the bull run could continue with minimal corrections.

Veteran trader Wu Jie expressed confusion about the sudden change in market sentiment, remarking, "The economy remains in poor shape." However, he acknowledged the high trading volume, indicating that the rally could be sustained. Wu plans to stay ready with cash for investment opportunities during potential market corrections.